TDG

Business Context and Reporting Period

Company: TransDigm Group Incorporated
Filing Type: Form 8-K (Current Report)
Date of Report: October 29, 2019
Reporting Period: Thirteen-week period and fiscal year ended September 30, 2019.
Context: This filing provides unaudited preliminary financial results in connection with a concurrent offering of senior subordinated notes. The results reflect the divestiture of the Esterline Interface Technology group and Souriau-Sunbank Connection Technologies as discontinued operations.

Key Financial Metrics

The following metrics represent management's unaudited preliminary estimates for the periods ended September 30, 2019, compared to actual results for the same periods in 2018.

Thirteen-Week Period Ended September 30, 2019

Fiscal Year Ended September 30, 2019

Discontinued Operations Impact: For the full fiscal year 2019, $297 million of revenue and $63 million of EBITDA As Defined were excluded due to divestitures.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased significantly year-over-year for both the quarter (approx. 45-47% increase) and the full year (approx. 36-37% increase), driven largely by the acquisition of Esterline Technologies Corporation.
• Profitability: Income from continuing operations increased for the quarter but decreased for the full fiscal year compared to 2018. The full-year decline is attributed to the exclusion of discontinued operations and potentially higher integration costs or amortization associated with recent acquisitions.
• EBITDA: EBITDA As Defined showed strong growth for both the quarter (approx. 32-34% increase) and the full year (approx. 28-29% increase), indicating improved operating cash flow generation despite the drop in GAAP net income for the full year.

Guidance, Outlook, and Management Commentary

• Debt Offering: TransDigm Inc. (a wholly-owned subsidiary) is proposing an offering of senior subordinated notes. Proceeds will be used to redeem outstanding 6.000% Senior Subordinated Notes due 2022 and for general corporate purposes, including potential acquisitions, dividends, or stock repurchases.
• Pro Forma Context: Management estimates that if the Esterline acquisition had closed at the beginning of the twelve-month period ended June 29, 2019, it would have contributed an additional $1,417 million in net sales and $229 million in EBITDA As Defined.
• Non-GAAP Measures: The company emphasizes "EBITDA As Defined" as a key metric for evaluating operating performance, liquidity, and compliance with financial covenants in its credit facilities. This measure adds back acquisition-related costs, refinancing costs, and non-cash charges.
• Risks: Forward-looking statements are subject to risks including the ability to complete the note offering, sensitivity to flight hours and customer profitability, geopolitical events, cybersecurity threats, and integration risks associated with the Esterline acquisition.

Investor Verification Checklist

• Final Audited Results: Verify the final audited financial statements for the quarter and fiscal year ended September 30, 2019, as current figures are preliminary and unaudited.
• Discontinued Operations: Confirm the final accounting treatment and financial impact of the Esterline Interface Technology and Souriau-Sunbank divestitures.
• Debt Structure: Review the final terms of the new senior subordinated notes offering and the execution of the redemption of the 2022 notes.
• EBITDA Reconciliation: Examine the detailed reconciliation of Net Income to EBITDA As Defined to understand the magnitude of add-backs for acquisition and integration costs.
• Integration Progress: Assess the progress and cost of integrating the Esterline Technologies Corporation acquisition, as this impacts future margins and cash flow.