10-QPeriod: Q1 FY2017

TransDigm Group INC Quarterly Report for Q1 Ended Dec 31, 2016

Filed February 8, 2017For Securities:TDG

Summary

TransDigm Group Inc. (TDG) reported strong top-line growth in the first quarter of fiscal year 2017, with net sales reaching $814.0 million, a 16.0% increase compared to the prior year's $701.7 million. This growth was driven by a combination of organic sales expansion and the contribution of recent acquisitions, particularly in the Power & Control segment. The company demonstrated robust profitability, with EBITDA As Defined reaching $385.0 million, or an impressive 47.3% of net sales, indicating effective cost management and operational leverage. While the company experienced a slight decrease in net income to $118.9 million from $129.4 million year-over-year, this was largely influenced by significant refinancing costs ($32.1 million) and increased interest expenses related to a higher level of outstanding borrowings to fund acquisitions and dividends. Despite these headwinds, the overall financial health remains strong, with substantial cash generated from operations ($225.8 million) and a solid backlog of $1.57 billion, primarily bolstered by recent acquisitions, positioning TransDigm for continued performance.

Financial Highlights

51 data points
Beta

Revenue

$814.02M

54.6% Gross Margin

Net Income

$118.87M

14.6% Net Margin

EPS (Diluted)

$0.41

Total Assets

$10.04B

Cash & Equivalents

$985.39M

Free Cash Flow

$203.98M

Financial Statements
Beta
Revenue$814.02M
Cost of Revenue$369.76M
Gross Profit$444.25M
SG&A Expenses$101.72M
Operating Income$317.01M
Net Income$118.87M
EPS (Basic)$0.41
Shares Outstanding (Basic)56.52M

Key Highlights

  • 1Net sales increased by 16.0% to $814.0 million in Q1 FY17, driven by both organic growth and recent acquisitions.
  • 2EBITDA As Defined was strong at $385.0 million, representing 47.3% of net sales, indicating effective operational performance.
  • 3Net income decreased by 8.2% to $118.9 million, impacted by significant refinancing costs and higher interest expenses.
  • 4Acquisition sales contributed $87.5 million to net sales, with the Power & Control segment seeing a 27.0% increase driven by acquisitions.
  • 5The company's sales order backlog stood at $1.57 billion as of December 31, 2016, up from $1.44 billion in the prior year, largely due to acquisitions.
  • 6Operating cash flow improved significantly, generating $225.8 million compared to $178.7 million in the prior year's comparable period.
  • 7A substantial special dividend payment of $1,376.0 million was made during the quarter, impacting financing activities.

Frequently Asked Questions

Net sales growth was driven by a combination of organic sales increases, particularly in the commercial aftermarket and defense sectors, and significant contributions from recent acquisitions, notably Breeze-Eastern, DDC, and Y&F/Tactair. These acquisitions added $87.5 million in sales, primarily within the Power & Control segment.

The decrease in net income was primarily due to a $32.1 million refinancing cost incurred during the quarter and a $34.0 million increase in net interest expense. The higher interest expense is a result of an increased weighted average level of outstanding borrowings used to fund acquisitions and a special dividend payment.

The company significantly increased its borrowings during the quarter. This included new term loans totaling approximately $1.13 billion, proceeds from which were partly used to repurchase $528.8 million in 2021 Notes. The company's total borrowings increased to approximately $11.0 billion from $8.4 billion in the prior year's comparable period.

The sales order backlog increased to $1.57 billion from $1.44 billion, primarily driven by the recent acquisitions. The company expects the majority of these orders to be delivered within the next twelve months, providing good visibility into near-term sales, although subject to potential customer cancellations or deferrals.