TransDigm Group Incorporated (TDG)’s Q1 2015 Earnings Conference Call Transcript

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The defense markets which make up about 30% of our revenues. Defense revenues were up 2% versus the prior year first quarter. The revenues were spotty by operating unit with no clear trends. First quarter defense bookings were up 23% versus the prior year Q1 & ran well ahead of revenues. The primary contributors were two large airborne specialty parashoot orders. As always we remain somewhat about trends in the military market. All-in-all, we had no substantive variation from our revenue expectations for Q1. Now moving on to profitability and on a reported basis again I am going to talk primarily about our operating performance or EBITA as defined.

The defined adjustments in Q1 were quite modest made up of non cash compensation expense & some acquisition costs. Our EBITA as Defined of about $270 million for Q1 was up 11% versus the prior Q1. EBITDA as define margins were about 46%. The Q1 margins without [Inaudible] from the impact of two acquisitions purchased in 2014 i.e airborne and EME holding was approximately 48% or up 2% versus Q1 of 2014 for the same mix of business. With respect to acquisitions we continue actively looking at opportunities. The pipeline of possibilities is active with a fairly broad range of deal sizes. The closings have been slow, we have seen reasonable amount of activity recently but closings are always difficult to predict. We remain disciplined and focused on value creation opportunities that meet our tight criteria.

Now moving on to the 2015 guidance based on our current view of the markets we are not changing our full year guidance. We believe there could be some organic upside in the EBITA. we prefer to see a little more market strength before we make an adjustment, as usual our guidance does not include any new acquisitions. To confirm the original market growth assumptions for year over year growth, commercial aftermarket, high single digit percents, commercial OEM, mid [Inaudible] defense about flat. In total with some puts and takes, our markets look about as we anticipated three months ago. As usual we will look at this again next quarter and update it if we see any changes & with that I will hand it over to Greg.

Greg Rufus – Chief Financial Officer, Executive Vice President, Secretary

Okay. Thanks Nick. Good morning. As we have said in the past & just to remind you again all of my comments are on a gap reported basis where Nick’s comments were mostly on a proforma basis. Sometimes we do have minor differences in our explanations. As disclosed in this morning’s press release our first quarter sales were $587 million & 11% greater than the prior year. Our organic sales were 3% higher than last year driven by growth in commercial aftermarket & commercial OEM offset with a modest decline in gap defense sales. Our first quarter gross profit was $321 million an increase of 13% over the prior year. The reported gross profit margin of 54.7% was one margin point higher than the prior year. A decrease in non-operating acquisition related cost versus the prior year contributed to the higher reported gross margin. Margins in the current quarter were also negatively impacted by approximately two margin points due to acquisition mix from airborne & EME. In other words excluding all acquisition activity our gross profit margin in the remaining business versus the prior year quarter improved approximately two margin points. The base businesses continued to expand margins as a result of the strength of our proprietary products & continually improving our cost structure. Selling & administrative expenses were 11.5% of sales for the current quarter compared to 10.8% in the prior year.

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