Transdigm Group Inc. · NYSE:TDG
Transdigm — Investor Day (June 2024)
114 slides from Transdigm's investor day presentation, Jun 26, 2024
Slide 1: 2024 TransDigm Analyst Day
2024 TransDigm Analyst Day June 26, 2024 1 Exhibit 99.1
Slide 2: Agenda
Agenda Time Event Presenter 8:30 Registration 9:00 Start Opening Remarks Nick Howley TDG Overview Kevin Stein Consistent Operating Model & Customer Value Overview Mike Lisman Management Process & Value Creation Joel Reiss Financial Review Sarah Wynne Mergers & Acquisitions Process Blake Kelleher Rec
Slide 3: Forward Looking Statements
Forward Looking Statements Statements in this presentation that are not historical facts, including statements under the heading “2024E,” are forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “may,” “will,” “should,” “expe
Slide 4: Special Notice Regarding Pro Forma and Non-GAAP Information
Special Notice Regarding Pro Forma and Non‐GAAP Information This presentation sets forth certain pro forma financial information. This pro forma financial information gives effect to certain recently completed acquisitions. Such pro forma information is based on certain assumptions and adjustments a
Slide 5: Opening Remarks
Opening Remarks Nick Howley– Chairman of the Board
Slide 6: Welcome
“WELCOME 2024 ANALYST DAY |
Slide 7: Consistent Value Compounder
7 Consistent Value Compounder In its 18 years under public ownership, TransDigm has outperformed the S&P 500 by 26x and its peer group by 12x Source: CapIQ 1. Return calculation assumes dividends are reinvested and accounts for share dilution 2. Peer Group consists of HEICO, Woodward, L3Harris, AAR
Slide 8: Consistent Value Compounder
8 Consistent Value Compounder TransDigm has returned nearly 3,300x its initial invested equity, reflecting a remarkably evenly distributed 36% IRR1 for over three decades
Slide 9: Organizational Philosophy - Decentralized
Corporate Control Local Autonomy Economy of Scale Mgmt Resources Value Generation Strategy Structure Execution Motivation Central Control Local Autonomy Employees Owners CORPORATE OPERATING UNIT Organizational Philosophy ‐ Decentralized 9
Slide 10: Unique Compensation Concept
Unique Compensation Concept – “Think/act like an owner” Low ` High Cash Compensation 100% Performance Vesting TDG Ownership Low ` High Equity Based Compensation Very High Shareholder Alignment 10
Slide 11: Consistent Strategy & Value Creation
11 Consistent Strategy & Value Creation “Private Equity‐ Like” Returns with Liquidity of a Public Market Decentralized Organization / Aligned with Shareholders Disciplined Acquisition Strategy Efficient Capital Structure Proprietary Aerospace and Aftermarket Value Based Operating Strategy
Slide 12: TransDigm Overview
TransDigm Overview Kevin Stein – President & CEO
Slide 13: Experienced Senior Management Team with Proven Track Record
Experienced Senior Management Team with Proven Track Record 13 EXECUTIVE TITLE Officers & Executives: Kevin Stein President & CEO Mike Lisman Co-COO Joel Reiss Co-COO Sarah Wynne CFO Alex Feil Executive VP Pete Palmer Executive VP Paula Wheeler Executive VP Patrick Murphy Executive VP Marko Enderlei
Slide 14: Superior Stock Performance
Superior Stock Performance 14(1) TransDigm returns are adjusted for special dividends paid of $187.00 in 10‐year period, $116.00 in 5‐year period and $35.00 in 1‐year period. All returns measured as of 5/31/24. (2) S&P adjusted for dividends estimated to be 1%. 27% 30% 79% 12% 15% 27% 0% 10% 20% 30%
Slide 15: Our Objective
“Private Equity‐Like Growth in Value with Liquidity of a Public Market” + 15% ‐ 20% / year on average Our Objective 15
Slide 16: Unique & Consistent Business Strategy
Unique & Consistent Business Strategy Private & Public Proprietary Aerospace Products with Significant Aftermarket 3‐Part Value‐Based Operating Strategy Decentralized, Organization/ Aligned with Shareholders Focused Discipline Acquisition Strategy “Private Equity‐Like” Capital Structure &
Slide 17: Company Overview
Company Overview % Change FY2024 Guidance Mid-Point (2) FY24 Guidance Mid-Point v. FY22 Revenue 5,429$ 6,585$ 7,740$ + 43% EBITDA as Defined (1) 2,646$ 3,395$ 4,045$ + 53% EBITDA as Defined margin 48.7% 51.6% 52.3% FYE Share Price $525 $843 $1,354 (4) + 158% FY2022 FY2023 ($ in millions) Enterprise
Slide 18: Consistent Record of Growth and Margin Expansion
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 19 93 19 98 20 03 20 08 20 13 20 18 20 23 20 24 E $7,740 Consistent Record of Growth and Margin Expansion ($ in millions) ($ in millions) EBITDA As Defined Margin % (1) 19.2% 39.6% 42.3% 46.6% 46.8% 49.3% 51.6% 52.3% (1) EBITDA as Def
Slide 19: Recurring Stream of Profitable Aftermarket Revenue
Recurring Stream of Profitable Aftermarket Revenue 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Profitability % Airframe Program Life Cycle (Years) Aftermarket OE Production 19
Slide 20: Strong Focus on High-Margin Aftermarket
Strong Focus on High‐Margin Aftermarket 20 Commercial Aftermarket 35% Commercial OEM 27% Defense 38% Aftermarket OEM Aftermarket: 56% OEM: 44% (1) Pro forma revenue is for the fiscal year ended 9/30/2023. Includes full year impact of the Calspan Corporation acquisition completed May 2023. Excludes i
Slide 21: Significant Proprietary Revenue Base
Note: Based on management estimates of pro forma TransDigm sales for FY2023. Please see the Special Notice Regarding Pro Forma and Non‐GAAP Information. 21 Proprietary ~90% Non‐proprietary ~10% Results in strong market positions and a stable, recurring revenue stream Significant Proprietary Revenue
Slide 22: Acquisition History by Period
1993 – 2006 2006 – 2010 2011 – 2014 Adel Aeroproducts Wiggins Controlex Marathon Adams Rite Aerospace Christie Champion Honeywell Lube Pump Fuelcom Norco Avionic Instruments Skurka Fluid Regulators Eaton Motors Talley Actuation Schneller Harco AmSafe Passenger R
Slide 23: TransDigm Deleverage Profile
TransDigm Deleverage Profile Net Debt / Pro Forma EBITDA as Defined Note: EBITDA as Defined is a non‐GAAP financial measure. For a reconciliation of EBITDA as Defined to Net Income, please see the appendix. 2.0x 2.5x 3.0x 3.5x 4.0x 4.5x 5.0x 5.5x 6.0x 6.5x 7.0x Special Dividend Warburg Pincus Recap
Slide 24: Consistent Strategy & Value Creation
24 Consistent Strategy & Value Creation “Private Equity‐ Like” Returns with Liquidity of a Public Market Decentralized Organization / Aligned with Shareholders Disciplined Acquisition Strategy Efficient Capital Structure Proprietary Aerospace and Aftermarket Value Based Operating Strategy
Slide 25: Our Markets & Customer Value Overview
Our Markets & Customer Value Overview Mike Lisman – Co‐COO
Slide 26: TDG Organization
TDG Organization 26 Kevin Stein President & CEO Mike Lisman Co-COO Joel Reiss Co-COO Jes Warren General Counsel Sarah Wynne CFO Scalable Organization Structure EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units
Slide 27: Diverse Products, Platforms and Markets
Diverse Products, Platforms and Markets 27
Slide 28: TransDigm - Expanding Global Footprint
TransDigm – Expanding Global Footprint 28 50 Operating Units; ≈110 Manufacturing Locations
Slide 29: Steady Growth in Passenger Traffic and Installed Base
Steady Growth in Passenger Traffic and Installed Base Drives Stable Aftermarket Sales 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Worldwide Installed Base Growth Worldwide Installed Base Growth 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Worldwide RPK Growth Worldwide RPK Growth Sourc
Slide 30: Commercial OEM Market Environment
Commercial OEM Market Environment 30 Commercial Transport (Boeing & Airbus) Source: Analysts/ Management Estimates Commercial Transport – Total Deliveries 50+ Year History 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 13 14 15 16 17 18 19 20 21 22 23E 24E 25E 26E 27E 28E 29E Commercial Trans
Slide 31: Fleet Age Remains Elevated
Fleet Age Remains Elevated Source: Aerodynamic Advisory 31 Age of Commercial Aircraft Fleet Over Time 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Average Aircraft Age (in years) (1) Includes Passenger & Cargo Active Fle
Slide 32: Defense Market Environment
Defense Market Environment 32 $500 $550 $600 $650 $700 $750 $800 $850 $900 $950 $1,000 2023 2024E 2025E 2026E 2027E 2028E U.S. Defense Base Budget ($Bn) CAGR + LSD% Source: U.S. DOD Defense Budgets (excludes supplementals), Aerodynamic Advisory, Aviation Week $500 $700 $900 $1,100 $1,300 $1,500 $1,7
Slide 33: Commercial Aftermarket Trends
‐50.0% ‐40.0% ‐30.0% ‐20.0% ‐10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% Global Long‐Term Avg Annual Growth (RPKs) Installed Base Avg Annual Long‐Term Growth TransDigm Growth Rolling 4 Qtr Peer Group Growth Rolling 4 Qtr Commercial Aftermarket Trends 5 Year Average TDG 11.9% Peer Group 9.0% Commercial
Slide 34: TransDigm's Addressed Market for Commercial Aftermarket
47% Others 53% TDG Addressed $57B 14% Fuel 32% Labor & Benefits 23% Other 31% Global Maintenance $122B TransDigm’s Addressed Market for Commercial Aftermarket Global Airline Operating Expenses 2023 Total = $855B Source: IATA / AeroDynamic Advisory Analysis / TDG Global Maintenance Spend 2023 Total =
Slide 35: Diverse Commercial Aftermarket Revenue Base
< $3 million Sales per year ≈ 80% to 85% TransDigm’s Diverse Commercial Aftermarket Revenue Base Total FY 2023 Commercial Aftermarket Worldwide Revenue by Annual Sales $ Per Part United Airlines Delta Airlines American Airlines IAG Air France‐KLM Emirates Lufthansa China Southern Airlines Southwest
Slide 36: Strong Positions on Diverse and Growing Platforms
Strong Positions on Diverse and Growing Platforms Note: Based on Management estimates of total revenue for 2023. Top 5 Commercial Platforms ≈ 20% Sales B737 A320 B777 B757/767 A350 Top 5 Defense Platforms ≈ 8% Sales Blackhawk C130 F35 F16 A400M TOP PLATFORMS 36
Slide 37: No Significant PMA Threat
No Significant PMA Threat – At or Below Market Exposure Levels PMA Market Penetration 3rd Party PMA ≈ 1½% to 2½% 3rd Party PMA Less than 2% Total INDUSTRY Commercial Aftermarket $ 37 Source: AeroDynamic Advisory Analysis / TDG Management Analysis Total TDG Commercial Aftermarket $
Slide 38: Surplus Parts Minimal TDG Impact
Surplus Parts Minimal TDG Impact 7 to 10% Surplus Below 4% Surplus Surplus Sales Market Penetration TDG Below Market %Industry No Significant Surplus Market Threat – Though Continue to Monitor TDG Parts Tend to be Consumables, Below $10K Average Sale Price and Away from the Engine – These are Not Ty
Slide 39: Proven Operating Strategy
Proven Operating Strategy Profitable New Business Productivity and Cost Improvements Value Based Pricing 3 Value Drivers 39
Slide 40: TDG Operating System
TDG Operating System: A Detailed Process Investment Highly Engineered Products Require Resourcing ≈ 8‐10% of Total Cost Spent on Engineering Organization Decentralized Execution Business Unit Team Concept Succession Planning Execution Relentless Drive to Create Value Strong Track Recor
Slide 41: Customer Value Proposition
Customer Value Proposition 41 Highest Value to Customers Provide Reliable, Well Engineered Products & Deliver Them On‐Time 41
Slide 42: Major New Business Content: Commercial Aircraft New Designs
Prior Platforms 777XPrior Platforms A350Prior Platforms B787 Major New Business Content: Commercial Aircraft “New Designs” 42 B787 A350 777X Strong “New Design” $ / Shipset Growth Over Prior Platforms – “Same Store Basis” Representative Products: • Composite Components • Clamps & Fasteners • Audio S
Slide 43: Major New Business Content: Single Aisle Commercial Aircraft
Prior Platforms A220, A320neo & B737Max Major New Business Content: Single Aisle Commercial Aircraft 43 $ / Shipset Growth Over Prior Platforms – “Same Store Basis” Representative Products: • Airframe Seals • Power Distribution Contactors & Relays • Air System Valving • Nacelle/Fuselage & Other Latc
Slide 44: New Defense Platforms - New Designs
New Defense Platforms – New Designs – “Same Store Basis” JSF A400M KC46 (767) Representative Products: • Airframe Seals • Hydraulic Actuators/Valves • Engine Clamps • Grommets & Line Supports • Data Management Processing Boards/Software • Electric Motors • Elastomers • Numerous Others Representative
Slide 45: Consistent Value Creation Strategy
Consistent Value Creation Strategy Product Line Detail Focus Active Talent Growth Disciplined Acquisition Integration Performance Stability Consistent Value Creati Strategy Business Unit Detail Focus Active Talent Growth Disciplined Acquisition Integration Solid Value Growth Process 45
Slide 46: Management Process & Value Creation
Management Process & Value Creation Joel Reiss – Co‐COO
Slide 47: TDG Organization
47 Kevin Stein President & CEO Mike Lisman Co-COO Joel Reiss Co-COO Jes Warren General Counsel Sarah Wynne CFO Scalable Organization Structure EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units EVP 6-7 Op Units TDG Organization
Slide 48: Value Creation Driver & Culture Carrier
Value Creation Driver & Culture Carrier Op Unit Business Guidance President “Coaching” Value Driver Emphasis Quarterly Reviews Talent Development President and Staff Weed & Feed Acquisition Value Creation Assist Due Diligence Guide Integration Process Assess & Revise Management EVP O
Slide 49: Organizational Philosophy
Structure Small Operating Units Focus on Products and Customers Few Management Layers Business Unit Discipline Execution Significant Local Autonomy Local Decisions Front Line Value Generation Motivation Think and Act Like Owner Create Value Lower Cash Compensation & Higher Equity Value Pricing Produ
Slide 50: Operating Unit Organization
President VP of Sales Business Unit Manager Business Unit Manager Business Unit Manager VP of Operations VP of Engineering VP of Finance Business Unit Team Business Unit Team Business Unit Team Business Unit Value Focus 50 Operating Unit Organization
Slide 51: Operating Units
50 Operating Units 115+ Business Units ≈ 16,000 Employees 51 Autonomous Operating Units Electron Device Business
Slide 52: Proven Operating Strategy
Profitable New Business Productivity and Cost Improvements Value Based Pricing 3 Value Drivers Proven Operating Strategy 52
Slide 53: Business Unit Value Creation
Grouping of Related Products Co‐located, Cross Functional Team Business Unit Manager Drives Performance Business Unit Teams Profitable New Business Productivity and Cost Improvements Value‐based Pricing Value Driver Focus Standardized Business Metrics Across Operating Units Quarterly
Slide 54: New Business
Drives Organic Growth Focus on Profitable New Business Customer‐Driven Business Opportunities Highly Engineered & Innovative Responsive Development 54 New Business
Slide 55: New Business - How we do it
Profitable New Business New Part with Existing Customer Existing Part with New Customer New Part with New Customer Strong Operational Performance Engineer to Engineer Selling Customer Sponsorship Solve Customer Technical Issues Customer Relationships Highly Engineered New Technology/Proc
Slide 56: New Business Model Example
2024 2025 2026 2027 2028 2029 Annual Data Production Sales NRE $507 $765 $968 $1,318 $1,536 Production COS ($475) ($448) ($656) ($815) ($1,065) ($1,166) Product Margin $59 $109 $153 $253 $370 Margin % 12% 14% 16% 19% 24% SG&A % ‐12% ‐12% ‐12% ‐12% ‐12% EBITDA Margin 0% 2% 4% 7% 12% Spares Sales $116
Slide 57: Productivity
Annual Productivity Improvements to Offset Inflation Across Total Cost Base 57 Productivity
Slide 58: Productivity - Detailed Cost Reduction Planning
Monthly Tracking Actual vs. Plan Assigned Owners and Due Dates Offset Unexpected Cost Challenges Not Just for Operations Trust but Validate Note: For Illustration Only 58SAMPLE Productivity – Detailed Cost Reduction Planning
Slide 59: Productivity - Sales per Employee
1 2 3 Note: For Illustration Only Sa le s P er E m pl oy ee Av er ag e # of E m pl oy ee s Improving Trend on Constant Dollar Basis “Real” Productivity Savings Productivity focused Capital Expenditures Automation Projects Cross‐Functional Training Cost Savings is not just for Operations 59
Slide 60: Operational Excellence - Quality
60 Processes • Revision Controlled Documentation • Cross‐Training Culture • Open & Honest Communication • VIP Programs • Engaged Management Metrics • Customer Quality & Delivery Ratings • Warranty Returns • Scrap & First Pass Yield • Supplier Quality Verification • Internal Audits • Third Party Audi
Slide 61: Operational Excellence and Value Pricing
Pe rc en t I nc re as e YTD Business Unit “A” Pricing Results Note: For Illustration Only 61 Operational Excellence and Value Pricing
Slide 62: Business Unit Income Statement Sample
Prior Year % to Q2 % to YTD % to YTD % to Actual Sls Actual Sls Actual Sls Plan Sls 36,814 100.0% Sales 9,819 100% 26,216 100% 25,974 100% Product Costs: 8,870 24.1% Material 2,326 23.7% 6,229 23.8% 6,284 24.2% 2,812 7.6% Direct Labor 730 7.4% 1,984 7.6% 1,924 7.4% 7,000 19.0% Overhead 1,801 18.3% 4
Slide 63: Business Unit Structure - Creating Value
Consistent Value Generation Value Creation Focus Clear Metrics Detailed Accountability 63 Business Unit Structure – Creating Value
Slide 64: Growing Value Requires Growing Talent
Organic Growth & Management Turnover Talent Demand Growth Requires Talent Acquisitions & Management Transitions 64 Growing Value Requires Growing Talent
Slide 65: Talent Development
Income Statement Balance Sheet Financial Competency Value Pricing New Business Modeling Productivity Management Value Creation Risk Management IP Protection Aftermarket Access Contracting Business Unit Reviews Site Visits & Operational Reviews 65 Talent Development
Slide 66: Succession, Development and Promotion
OR Key Positions President VP of Sales VP of Operations Business Unit Manager Manufacturing Manager New Acquisition President Dir of S&M Dir of Eng Dir of Mfg. Controller Prod Line Mgr Mfg MgrEng Lead HR, QC Other Existing Unit President Dir of S&M Dir of Eng Dir of Mfg. Controller Prod Line Mgr Mfg
Slide 67: TransDigm Leadership Development Programs
Executive Development Program Customized Curriculum Team Based Action Learning Projects Individual Development Plan Formal Mentoring Program 2 EVP Sponsors 4 Cohorts, Over 100 Participants 50% Promotion Rate Business Unit Manager Development Program Case Studies Highly Particip
Slide 68: Management Development Program (MDP)
Recruit smart & energetic future leaders Two‐year rotational program for MBA graduates Three 8‐month rotations at different operating sites Gain experience in Operations, Sales, Product Development and Supply Chain 39 participants over 6 years 68 Management Development Program (MDP)
Slide 69: Talent Development - Promotions
Leadership Promotions 2019‐2023 Internal 64% External 36% Internal Promotions Culture‐Carriers Smart Energetic Proven‐Track Record of Creating Value Demonstrated Leadership 69 Talent Development ‐ Promotions
Slide 70: Consistent Value Creation Strategy
Consistent Value Creation Strategy Business Unit Detail Focus Active Talent Development Solid Value Growth Process 70 Performance Stability
Slide 71: Financial Overview
Financial Overview Sarah Wynne – CFO
Slide 72: TransDigm Continues to Grow and Generate Significant Cash
TransDigm Continues to Grow and Generate Significant Cash Enterprise ValueAdjusted Earnings Per ShareEBITDA AS DefinedRevenue $5,223 $5,103 $4,798 $5,429 $6,585 $7,740 2019 2020 2021 2022 2023 2024E ($ in millions) $2,419 $2,278 $2,189 $2,646 $3,395 $4,045 46.3% 44.6% 45.6% 48.7% 51.6% 52.3% $1,000
Slide 73: TransDigm - How was the Past Years?
TransDigm – How was the Past 5 Years? $1,500 $1,700 $1,900 $2,100 $2,300 $2,500 $2,700 $2,900 $3,100 $3,300 $3,500 1 2 3 4 5 6 49.3% (1) Last 5 Year EBITDA Growth Welcome ESL! 2018 2019 2020 2021 2022 2023 73 51.6% (1) (1) EBITDA as Defined is a non‐GAAP financial measure. See the appendix for a his
Slide 74: Significant Free Cash Flow
Significant Free Cash Flow 74 Note: Free Cash Flow before Working Capital is a non‐GAAP financial measure. Please see appendix for a reconciliation of Free Cash Flow before Working Capital. 51% 55% 51% 45% 45% 47% 54% 54% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2017 2018 2019 2020 2021 2022 2023
Slide 75: Strong Free Cash Flow Allows TransDigm to be Highly Levered
2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x FY'18 FY'19 FY'20 Q1 Q2 Q3 FY'21 Q1 Q2 Q3 FY'22 Q1 Q2 Q3 FY'23 Q1 Q2 Strong Free Cash Flow Allows TransDigm to be Highly Levered Note: Fiscal year ending 30‐Sep. Net leverage defined as Net Debt / EBITDA As Defined. EBITDA As Defined is a non‐GAAP financial measure
Slide 76: Fiscal 2024 Financing Activity
Fiscal 2024 Financing Activity November 2023 Raised ≈ $2B of newly issued debt primarily for CPI Electron Device Business Acquisition February 2024 Completed refinancing of $4.4B Senior Secured Notes Increased and extended Revolver, Increased capacity by $100M to $910M March 2024 Completed ‘
Slide 77: Debt Maturity Profile and Interest Rates
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 2024 2025 2026 2027 2028 2029 2030 2031 2032 Secured Term Loans Secured Notes Sr Sub Notes Calendar Year Weighted Average Interest Rate Pre‐Financing 6.3% Debt Maturity Profile and Interest Rates 77 $1,496 Weighted Average Interest Rate Post
Slide 78: Pro Forma Capitalization Structure
Pro Forma Capitalization Structure 78 (1) (1) Pro forma cash, total debt and net debt reflect the April 2024 redemption of the $550M 7.50% senior subordinated notes due 2027. Actual cash includes the $550M classified as restricted cash on the Company’s consolidated balance sheet as of March 30, 2024
Slide 79: Shareholder Return, Operational Performance, Financial Leverage
Shareholder Return 79 Operational Performance Financial Leverage
Slide 80: Superior Results
Superior Results 80(1) TransDigm returns are adjusted for special dividends paid of $187.00 in 10‐year period, $116.00 in 5‐year period and $35.00 in 1‐year period. All returns measured as of 5/31/24. (2) S&P adjusted for dividends estimated to be 1%. 27% 30% 79% 12% 15% 27% 0% 10% 20% 30% 40% 50% 6
Slide 81: Mergers & Acquisitions
Mergers & Acquisitions Blake Kelleher – VP Mergers & Acquisitions
Slide 82: Focused Acquisition Strategy
Focused Acquisition Strategy 82 Aerospace Products Proprietary Engineered Products Significant Aftermarket Content
Slide 83: Acquisition History
Acquisition History 83 Fiscal Year $ Invested FY ‘14 $298M FY ‘15 $1,621M FY ‘16 $1,435M FY ‘17 $105M FY ‘18 $659M FY ‘19 $4,133M FY ‘20 $0 FY ‘21 $965M FY ‘22 $448M FY ‘23 $749M FY ‘24* $1,684M Annual Average = ≈$1.1B / Year (≈$800M excl‐ESL) * As of June 26, 2024 CPI – Electron Device Business
Slide 84: M&A Organizational Structure
M&A Organizational Structure 84 Kevin Stein President & CEO Blake Kelleher VP – M&A Director M&A (Senior) Director M&A (Junior) Director M&A (Commercial) Brokers Strong and Stable Team Rotational Director Roles Utilize Brokers to Assist in US & Europe
Slide 85: Lead Generation is a Systematic Approach
Lead Generation is a Systematic Approach Conferences / Shows Networking Visit, Visit, Visit! Privately Held / Family‐Owned Private Equity Ownership 85 Strategic Owners
Slide 86: Active Acquisition Process
Active Acquisition Process 86 Current Multiple(s): 14 – 16x EBITDA Post Acquisition: 50%+ Multiple Reduction Typical Results
Slide 87: Acquisition Sourcing - Since IPO
Acquisition Sourcing – Since IPO 87 31% 40% 29% Number of Acquisitions Note: Statistics include businesses acquired but later divested. 36% 15% 49% Strategic Privately Held Private Equity Acquired EBITDA at Time of Acquisition ~65% is Esterline Acquisition
Slide 88: Acquisition History by Period
1993 – 2006 2006 – 2010 2011 – 2014 Adel Aeroproducts Wiggins Controlex Marathon Adams Rite Aerospace Christie Champion Honeywell Lube Pump Fuelcom Norco Avionic Instruments Skurka Fluid Regulators Eaton Motors Talley Actuation Schneller Harco AmSafe Passenger R
Slide 89: What We Don't Look For
What We Don’t Look For 89 Synergy Market Share Fill Out Product Line Excess Capacity Access to Markets Blah, Blah, Blah… • Name in Paper • Increase Salary • Get Promoted • Be Fun • Bigger Boss • Bragging Rights Bigger is Better Globalization Diversify Consolidating Industry Spe
Slide 90: What We Do Look For
What We Do Look For 90 (1) (1) EBITDA as Defined is a non‐GAAP financial measure. See the appendix for a historical reconciliation of Income from Continuing Operations to EBITDA as Defined.
Slide 91: Investment Evaluation Sample
Investment Evaluation 91 SAMPLE Investment Year 1 Year 2 Year 3 Year 4 Year 5 ($76,000) EBITDA $18,405 $22,530 $26,426 $30,161 $34,243 Multiple 10.0 10.0 10.0 10.0 10.0 TEV $184,053 $225,304 $264,265 $301,608 $342,430 Less debt (91,631)$ (89,571)$ (86,086)$ (81,439)$ (75,399)$ Market Value $92,422 $
Slide 92: Common Issues Identified During Due Diligence
Common Issues Identified During Due Diligence 92 Misunderstood Aftermarket Wasteful Spending Misunderstood Value of Products Unfocused New Business Process Lack of Business Unit Structure Investment / Capital Starved
Slide 93: Acquisition Integration
Acquisition Integration Patrick Murphy ‐ EVP
Slide 94: Acquisition Integration Process
Acquisition Integration Process Now That We Own It ‐ What Do We Do With It!? Why Does this Fit with TransDigm? Focused on Aerospace Proprietary Products, Process or Technologies Significant Aftermarket Content Generally Good Businesses Misunderstood or Mismanaged Our Job: Unlock Shareholder
Slide 95: Acquisition Integration Process - Keys to Success
Acquisition Integration Process – Keys to Success Assess the Unique Risks and Opportunities of each New Acquisition Which aspects of value generation model are needed most Varying Degrees of Operational Improvement Operations and Supply Chain Contractual Opportunities & Constraints New Busin
Slide 96: Acquisition Integration Process - Timeline
Acquisition Integration Process ‐ Timeline Present TransDigm, Our Culture and Value Generation Strategy ………………………..…. 0 ‐ 15 Control Working Capital and Establish Financial Plan …………………………………………….. 0 ‐ 90 Evaluate Key Staff Personnel Competency …………………………………………………………….. 0 ‐ 90 Review OE/AM C
Slide 97: CPI's Electron Device Business
CPI’s Electron Device Business 97 Acquisition Date: June 2024 Purchase Price: ≈ $1.385B Splitting into Two Operating Units Post‐Acquisition EBITDA Margin Profile As of Acquisition Date: 25% ‐ 30% EBITDA Margin Expect to create private equity‐like returns Products – Electronic Components
Slide 98: Calspan Corporation
Calspan Corporation 98 Acquisition Date: May 2023 Purchase Price: ≈ $725M EBITDA Margin Profile As of Acquisition Date: ≈ 25% EBITDA Margin Expect to create private equity‐like returns Services & Products – Wind Tunnel & Flight Testing and Jet Engine Test Cells Defense 35% Commercial Aeros
Slide 99: DART Aerospace
DART Aerospace 99 Acquisition Date: May 2022 Purchase Price: ≈ $360M EBITDA Margin Profile As of Acquisition Date: ≈ 25% EBITDA Margin Expect to create private equity‐like returns Products – Unique Helicopter Mission Solutions for Aerial Firefighting, Cargo Expansion and Flotation Defense
Slide 100: Bolt-on Acquisitions
Bolt‐on Acquisitions 100 Acquisition Date: March 2024 Purchase Price: ≈ $55M EBITDA Margin Profile As of Acquisition Date: ≈ 20% EBITDA Margin Expect to create private equity‐like returns Products – Helicopter Fuel & Flotation Systems Defense 40% Commercial 60% Revenues Products for Aerial
Slide 101: Cobham Aero Connectivity
Cobham Aero Connectivity 101 Acquisition Date: January 2021 Purchase Price: ≈ $965M Split into Two Operating Units Post‐Acquisition Chelton Ltd (Marlow, UK) Canyon AeroConnect (Prescott, AZ) EBITDA Margin Profile As of Acquisition Date: ≈ 25% EBITDA Margin Expect to create private eq
Slide 102: Esterline Technologies
Esterline Technologies 102 Acquisition Date: March 2019 Purchase Price: ≈ $4B Retained 12 Operating Units ≈ 25% of Esterline was Sold Post‐Acquisition Sold 8 Operating Units for ≈ $1.3B Primarily Non‐Aerospace Operating Units or Aerospace Operating Units that did not fit TDG Criteria E
Slide 103: M&A Wrap-Up
M&A Wrap‐Up Kevin Stein – President & CEO
Slide 104: Actual Performance - Example
Actual Performance – Example 2018 Price Productivity New Biz & Market (Volume) 2023 2018 Price Productivity New Biz & Market (Volume) 2023 EBITDA hit Year 5 model target in only 1 year of ownership Acquisition Model EBITDA Bridge Actual / FCST EBITDA Bridge 104
Slide 105: Recent M&A - Slightly Opening the Aperture
Recent M&A – Slightly Opening the Aperture 105 CORE BUSINESS Aerospace & Defense, Components and Aftermarket Source: (1) AeroDynamic Advisory, market for Tier 1 / Tier 2 aerospace components and AMKT; estimated $60B OE and $60B Component AMKT * *On May 28, 2024, TransDigm announced it had entered in
Slide 106: How Do We Get 15% - 20% /yr Return?
106 How Do We Get 15% ‐ 20% /yr Return? 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Acquisition Leverage Organic EBITDA Growth Acquisition Strategy Capital Structure Market Growth Value Drivers Culture %/yr Consistent Strategy
Slide 107: Presentations Starting Location
107 Presentations Starting Location Product Presentation Breakout Group – A Ballroom (Main Floor) Group – C Arcade (Downstairs) Group – D Arcade (Downstairs) Group – B Ballroom (Main Floor) Greg Campbell Calspan President, Calspan Jason Abbott Chelton Retiring President, Chelton Ryan Williamson DART
Slide 108: Appendix
Appendix
Slide 109: APPENDIX: Non-GAAP Supplemental Information
APPENDIX: Non‐GAAP Supplemental Information 109 EBITDA, EBITDA As Defined, EBITDA As Defined Margin, Adjusted Net Income and Adjusted Earnings Per Share are non‐GAAP financial measures presented in this presentation as supplemental disclosures to income from continuing operations and reported result
Slide 110: APPENDIX: Non-GAAP Supplemental Information (Continued)
APPENDIX: Non‐GAAP Supplemental Information (Continued) 110 TransDigm Group presents these non‐GAAP financial measures because it believes that they are useful indicators of its operating performance. TransDigm Group believes that EBITDA is useful to investors because it is frequently used by securi
Slide 111: APPENDIX: Non-GAAP Supplemental Information (Continued)
APPENDIX: Non‐GAAP Supplemental Information (Continued) 111 Although we use EBITDA and EBITDA As Defined as measures to assess the performance of our business and for the other purposes set forth above, the use of these non‐GAAP financial measures as analytical tools has limitations, and you should
Slide 112: APPENDIX: Reconciliation of Income from Continuing Operations to EBITDA As Defined
APPENDIX: Reconciliation of Income from Continuing Operations to EBITDA and EBITDA As Defined 112 ($ in mi l l ions) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revenue 52$ 57$ 63$ 78$ 111$ 131$ 151$ 201$ 249$ 293$ 301$ 374$ 435$ 593$ 714$ 762$ 828$ Income (L
Slide 113: APPENDIX: Reconciliation of Income from Continuing Operations to EBITDA As Defined
(1) APPENDIX: Reconciliation of Income from Continuing Operations to EBITDA and EBITDA As Defined 113 LTM ($ in mi l l ions) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 3/30/24 2024E Revenue 1,206$ 1,700$ 1,924$ 2,373$ 2,707$ 3,171$ 3,504$ 3,811$ 5,223$ 5,103$ 4,798$ 5,429$ 6,58
Slide 114: APPENDIX: Reconciliation of Adjusted Net Income and Free Cash Flow Summary
APPENDIX: Reconciliation of Adjusted Net Income to Net Income and Free Cash Flow Summary 114 ($ and shares in mi l l ions) 2019 2020 2021 2022 2023 2024E Net income from continuing operations 841$ 653$ 681$ 866$ 1,299$ 1,647$ Gross adjustments from EBITDA to EBITDA as Defined 271 226 162 190 247 293