10-QPeriod: Q1 FY2019

TransDigm Group INC Quarterly Report for Q1 Ended Dec 29, 2018

Filed February 6, 2019For Securities:TDG

Summary

TransDigm Group Inc. (TDG) reported strong top-line growth in the first quarter of fiscal 2019, with net sales increasing by 17.1% to $993.3 million compared to the prior year period. This growth was driven by a significant 11.6% increase in organic sales and the contribution from recent acquisitions. The company also demonstrated improved profitability, with gross profit increasing by 18.3% and gross profit margin expanding by 0.6 percentage points to 56.8%. This performance was supported by effective cost management and the successful integration of acquired businesses, reflecting the company's core value-driven operating strategies. Despite the strong operational performance, net income for the quarter decreased by 37.7% to $196.0 million, primarily due to a higher income tax provision in the current year compared to a significant tax benefit in the prior year related to the Tax Cuts and Jobs Act. The company also reported a substantial increase in interest expense, driven by higher outstanding borrowings related to recent financing activities and acquisitions. Looking ahead, TransDigm is progressing with its significant acquisition of Esterline, having secured $4.0 billion in senior secured notes financing, with an expected closing in March or April 2019. The company maintains a robust backlog, providing visibility for future sales.

Financial Highlights

52 data points
Beta

Revenue

$993.00M

56.8% Gross Margin

Net Income

$196.00M

19.7% Net Margin

EPS (Diluted)

$3.05

Total Assets

$12.39B

Cash & Equivalents

$2.34B

Free Cash Flow

$306.00M

Financial Statements
Beta
Revenue$993.00M
Cost of Revenue$429.00M
Gross Profit$564.00M
SG&A Expenses$122.00M
Operating Income$422.00M
Net Income$196.00M
EPS (Basic)$3.05
Shares Outstanding (Basic)56.30M

Key Highlights

  • 1Net sales grew 17.1% year-over-year to $993.3 million, driven by 11.6% organic sales growth and acquisition contributions.
  • 2Gross profit increased by 18.3% to $564.1 million, with gross profit margin improving by 0.6 percentage points to 56.8%.
  • 3EBITDA As Defined showed strong growth, increasing by 21.8% to $502.1 million, reflecting operational efficiency.
  • 4The company secured significant financing ($4.0 billion in senior secured notes) for the pending acquisition of Esterline, with closing expected in March/April 2019.
  • 5Sales order backlog stood at $2,181 million as of December 29, 2018, up from $1,706 million in the prior year, indicating strong future demand.
  • 6Despite operational strength, net income decreased by 37.7% to $196.0 million, mainly due to a higher tax provision in the current period compared to a tax benefit in the prior year.
  • 7Interest expense increased by 6.9% to $172.0 million due to higher average outstanding borrowings, reflecting strategic financing and acquisitions.

Frequently Asked Questions

Revenue growth was primarily driven by a combination of organic sales growth across defense, commercial OEM, and commercial aftermarket sectors, which increased by 11.6%, and sales from recently acquired businesses, notably Skandia, Extant (including NavCom), and Kirkhill.

The decrease in net income was largely attributable to a higher income tax provision in the current quarter compared to the prior year. The prior year period benefited from a significant discrete tax benefit related to the Tax Cuts and Jobs Act, which boosted net income then. Additionally, increased interest expense due to higher debt levels from financing activities and acquisitions also impacted net income.

The acquisition of Esterline for approximately $4.0 billion is progressing well, with required regulatory reviews largely complete. TransDigm has secured financing through private offerings of $4.0 billion in senior secured notes due 2026, expected to close around February 13, 2019. The acquisition is anticipated to close in March or April 2019, subject to final regulatory approvals.

TransDigm carries a significant amount of debt, with total term loans of approximately $7.6 billion and a $600 million revolving credit facility as of December 29, 2018. The company recently issued $4.0 billion in senior secured notes to finance the Esterline acquisition and $550 million in senior subordinated notes to redeem its 2020 Notes. Management believes its strong margins and cash flow generation are sufficient to meet its interest obligations and liquidity needs, but investors should note the substantial leverage.