Transdigm Group Inc. · NYSE:TDG
Transdigm — Investor Day (June 2018)
109 slides from Transdigm's investor day presentation, Jun 28, 2018
Slide 1: 2018 TransDigm Analyst Day
2018 TransDigm Analyst Day June 28, 2018
Slide 2: Agenda
Agenda Time Event Presenter 8:30 Registration 9:00 Start TDG Overview Nick Howley Consistent Operating Model & Customer Value Overview Kevin Stein Management Process & Value Creation Jorge Valladares Mergers & Acquisitions Bernie Iversen & Mike Lisman Recent Acquisitions & Integration Bob Henderson
Slide 3: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including information regarding our guidance for future periods. These forward-looking statements are based on management’s current expectation
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: Transdigm Overview
Transdigm Overview Nick Howley – Executive Chairman
Slide 6: Experienced Senior Management Team with Proven Track Record
Experienced Senior Management Team with Proven Track Record EXECUTIVE TITLE Officers: Proven track record Nick Howley Executive Chairman Kevin Stein CEO & President Experienced with a leveraged Bob Henderson Vice Chairman capital structure Jim Skulina CFO & Executive VP Jorge Valladares COO - Po
Slide 7: Superior Stock Price Performance
Superior Stock Price Performance Historical TDG Returns vs. SP 500 40% 36% 35% 30% 26% 25% 24% 20% 15% 14% 12% 10% 8% 5% 0% 10 YR Return CAGR 5 YR Return CAGR 1 YR Return CAGR (1) (2) TDG S&P 500 (1) TransDigm returns are adjusted for special dividends paid of $113.50 in 10-year period, $93.00 in 5-
Slide 8: Our Objective
Our Objective “Private Equity-Like Growth in Value with Liquidity of a Public Market” + 15% - 20% /year on average 7
Slide 9: Unique & Consistent Business Strategy Private & Public
Unique & Consistent Business Strategy Private & Public TransDigm’s Consistent Goal – “Private Equity-Like” Returns to Shareholders Proprietary Aerospace Products with Significant Aftermarket 3-Part Value-Based Operating Strategy Decentralized, Organization/ Aligned with Shareholders Focused
Slide 10: Key Business Events Since Last Investor Day
Key Business Events Since Last Investor Day Continued, Consistent Outstanding Value Creation Closed Seven Acquisitions for a Total Purchase Price of ≈ $1 Billion (1) Frequented the Credit Markets to Raise New Debt and/or Refinance ≈ $17 Billion Extended Debt Maturities Locked in More Favorab
Slide 11: Company Overview
Company Overview Business Snapshot ($ in millions) FY 2018 Guidance % 2015 2016 2017 Mid-Point (2) Change Revenue $ 2,707 $ 3,171 $ 3,504 $ 3,780 + 40% EBITDA as Defined (1) $ 1,234 $ 1,495 $ 1,711 $ 1,855 + 50% EBITDA as Defined margin 46% 47% 49% 49% $302 (4) (4) FYE Share Price $212 $289 $386 + 8
Slide 12: Consistent Record of Growth and Margin Expansion
Consistent Record of Growth and Margin Expansion ($ in millions) ($ in millions) Revenue EBITDA as Defined and Margin (1) $3,780 $3,504 (1) $1,855 $1,711 $3,171 $1,495 $2,707 $2,373 $1,234 $1,073 $1,924 $1,700 $900 $809 $1,206 $590 $828 $412 $762 $714 $375 $333 $593 $275 $435 $374 $194 $293$301 $164
Slide 13: Recurring Stream of Profitable Aftermarket Revenue
Recurring Stream of Profitable Aftermarket Revenue Profitability % Aftermarket OE Production 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Airframe Program Life Cycle (Years) 12
Slide 14: Strong Focus on High-Margin Aftermarket
Strong Focus on High-Margin Aftermarket FY 2017 Pro Forma Revenues(1) EBITDA As Defined Defense Commercial OEM 34% Aftermarket 36% Aftermarket Commercial OEM 30% Aftermarket: 55% OEM: 45% (1) Pro Forma Revenue and EBITDA as Defined for FY2017 includes the full year impact of acquisitions purchased i
Slide 15: Significant Proprietary and Sole Source Revenue Base
Significant Proprietary and Sole Source Revenue Base Proprietary Revenue Sole Source Revenue Non- proprietary ~10% Non-sole source ∼20% Proprietary ~90% Sole source ~80% Results in strong market positions and a stable, recurring revenue stream Note: Based on management estimates of pro forma TransDi
Slide 16: TransDigm's Addressed Market for Commercial Aftermarket
TransDigm’s Addressed Market for Commercial Aftermarket Global Airline Operating Expenses Global Maintenance Spend TDG Addressed Market 2017 Total = $697B 2017 Total = $66B 2017 Total = $29B Global TDG Air Other TDG Transport 35% Maintenance Addressed $66B Aftermarket $29B Others ≈ $1.0B 56% Others
Slide 17: TransDigm's Diverse Commercial Aftermarket Revenue Base
TransDigm’s Diverse Commercial Aftermarket Revenue Base Total FY 2017 Commercial Top 20 Airlines Aftermarket Worldwide Revenue by Annual Sales $ Per Part American Airlines Delta Airlines United Continental > $2 million Emirates Airlines Sales per year Air France/KLM ≈ 10% China Southern Airlines Sou
Slide 18: Organizational Philosophy
Organizational Philosophy CORPORATE Corporate Local Control Autonomy Value Generation Strategy OPERATING UNIT Economy Mgmt Local Emp- Central loyees of Scale Resources Control Autonomy Owners Structure Execution Motivation 17
Slide 19: Unique Compensation Concept – Think/act like an owner
Unique Compensation Concept – “Think/act like an owner” TDG Ownership Low ` High Low ` High Cash Compensation Equity Based Compensation 100% Performance Vesting Very High Shareholder Alignment 18
Slide 20: Proven Record of Acquisition & Integration
Proven Record of Acquisition & Integration Privately Held NYSE 1993 – 2006 2006 – 2010 2011 – 2014 2015 – 2018 Adel Sweeney Talley Actuation Telair International Telair Aeroproducts Electra-Motion Schneller AAR Cargo Systems Wiggins CDA InterCorp. Harco Nordisk Aviation Con
Slide 21: TransDigm Delevering Profile
TransDigm Delevering Profile (Net Debt / PF EBITDA as Defined) Refi & Special Dividend Dividend 7.0x Special Telair, Dividend Franke and Pexco DDC 6.5x Acquisition Special & GCP Warburg McKechnie Dividend 6.0x Pincus Acquisition Recap 5.5x IPO 5.0x Special Recap & AmSafe Dividend Dividend Acquisitio
Slide 22: 5 Yr Go Forward Estimated Growth
5 Yr Go Forward Estimated Growth (wo/ACQ) %/Yr TDG Estimated Organic Growth (1) 12% range 9% range Growth %/YR 6% 3% 0% Revenue EBITDA (1) Based on market assumptions listed on slide 41. Assuming no additional acquisitions. 21
Slide 23: Consistent Strategy & Value Creation
Consistent Strategy & Value Creation Proprietary Aerospace and Aftermarket Value Based Operating Strategy “Private Equity- Like” Returns with Decentralized Organization / Aligned with Public Liquidity Shareholders Disciplined Acquisition Strategy Efficient Capital Structure 22
Slide 24: Consistent Operating Model & Customer Value Overview
Consistent Operating Model & Customer Value Overview Kevin Stein – President & CEO
Slide 25: TDG Organization
TDG Organization Nick Howley Executive Chairman Bob Henderson Kevin Stein Vice President & Chairman CEO Halle Terrion Jorge Valladares Jim Skulina Bernie Iversen General Counsel COO - Power CFO M&A & CCO EVP EVP EVP EVP EVP EVP 5-7 Op Units 5-7 Op Units 5-7 Op Units 5-7 Op Units 5-7 Op Units 5-7 Op
Slide 26: Diverse Products, Platforms and Markets
Diverse Products, Platforms and Markets 25
Slide 27: TransDigm – Expanding Global Footprint
TransDigm – Expanding Global Footprint 26
Slide 28: Steady Growth in Passenger Traffic and Installed Base Drives Stable Aftermarket Sales
Steady Growth in Passenger Traffic and Installed Base Drives Stable Aftermarket Sales Worldwide Installed Base Growth 35,000 32,000 29,000 26,000 23,000 20,000 17,000 14,000 4.1% CAGR 11,000 8,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201
Slide 29: Commercial OEM Market
Commercial OEM Market (units delivered) Commercial Transports Commercial Transport – Total Deliveries (Boeing & Airbus) 50+ Year History 15 years + 2,000 1,800 1,800 1,600 1,600 7 years 1,400 1,200 7 years 1,400 1,000 5 years 800 1,200 4 years 600 400 1,000 200 0 800 1964 1966 1968 1970 1972 1974 19
Slide 30: Commercial Aftermarket Trends
Commercial Aftermarket Trends Commercial Aftermarket Growth 5 Year Average 25.0% TDG 6.0% 20.0% Peer Group 4.0% 15.0% 10.0% 5.0% 0.0% Global Long-Term Avg Annual Growth (RPM's) Installed Base Avg Annual Long-Term Growth Peer Group Growth Rolling 4Qtr (%) TransDigm Growth Rolling 4Qtr (%) Sources: Pe
Slide 31: Military Outlook
Military Outlook $ Millions (Constant $) 2017 - 2023 TransDigm Base Military Revenue Forecast* 1,400 Up LSD% 1,200 1,000 800 600 Aftermarket 400 OEM 200 0 2017 2018E 2019E 2020E 2021E 2022E 2023E JSF (F-35) and KC-46 (767) are Military Growth Platforms *Excludes price increases and based on current
Slide 32: Strong Positions on Diverse and Growing Platforms
Strong Positions on Diverse and Growing Platforms TOP PLATFORMS A320 B737 A330/A340 B777 ≈32% Sales A350 B787 B747 A400M C130 B757/767 ≈18% Sales Blackhawk A380 CRJ & C-Series Gulfstream Note: Based on Management estimates of total revenue for 2017. 31
Slide 33: Proven Operating Strategy
Proven Operating Strategy Profitable Productivity Value Based New and Cost Pricing Business Improvements 3 Value Drivers 32
Slide 34: TDG Operating System: A Detailed Process
TDG Operating System: A Detailed Process Investment Highly Engineered Products Require Resourcing ≈ 7-9% of total cost spent on Engineering Organization Decentralized Execution BUM Team Concept Succession Planning Execution Relentless Drive to Create Value 33
Slide 35: Customer Value Proposition
Customer Value Proposition Provide Reliable, Well Engineered Products & Deliver Them On-Time Highest Value to Customers 34 34
Slide 36: TDG Commercial Transport OEM By Platform
TDG Commercial Transport OEM By Platform Well Positioned For Growth 2017 Run Rate Higher $/Yr 2022 Run Rate 2017 % Rev Model (1) 2022 % Rev Model (1) Platform A350 A350 B737 NG/Max B737 Max B320 CEO/NEO A320 NEO A787 B787 B777 B777X A330/340 C-Series/CRJ 80% + A380 80% + A330/340 C-Series/CRJ A380 B
Slide 37: Major New Business Content: Commercial Aircraft New Designs
Major New Business Content: Commercial Aircraft “New Designs” $ / Shipset Growth Over Prior Platforms – “Same Store Basis” B787 A350 C-Series + Over 25% + ≈ 2X + ≈ 2X Prior Platforms B787 Prior Platforms A350 Prior Platforms C-Series Representative Products: Representative Products: Representative P
Slide 38: Modest Design Change = Modest Content Change
Modest Design Change = Modest Content Change $ / Shipset Growth Over Prior Platforms – “Same Store Basis” B777X A320neo B737Max + HSD/LDD % + LDD % + LSD % Prior Platforms B777X Prior Platforms A320neo Prior Platforms B737max Representative Products: Representative Products: Representative Products:
Slide 39: TDG Defense OEM By Platform
TDG Defense OEM By Platform 2017 Run Rate Higher $/Yr 2022 Run Rate 2017 % Rev Model (3) Platform 2022 % Rev Model (3) Parachutes (1) Parachutes (1) A400M A400 M UH60/Blackhawk (2) F-35/JSF F-35/JSF UH-60/Blackhawk(2) C-130 C-130 V-22 CH-47 CH-47 F-18 ≈ 60% F-18 ≈ 60% AH64/Apache AH-64/Apache V-22 S
Slide 40: New Defense Platforms – New Designs – Same Store Basis
New Defense Platforms – New Designs – “Same Store Basis” $ / Shipset Growth Over Prior Platforms – “Same Store Basis” JSF A400M KC46 (767) + ≈50 % + ≈ 2X + ≈ 2X Prior Platforms JSF Prior Platforms A400M Prior Platforms KC46 (767) Representative Products: Representative Products: Representative Produ
Slide 41: TDG PMA SKU's – Growing Substantially
TDG PMA SKU’s– Growing Substantially ≈20,000 Average New TDG PMAs / Yr - Last 5 years Compared to TDG AFTERMARKET ≈130 Average of New 3rd Party PMAs on Total PMA’s TDG Parts / Yr - Over 400,000 Last 5 years Active PMA’s Over 300,000 (1) (2) Total PMA – assemblies, parts and sub-assemblies currently
Slide 42: PMA Market Penetration
PMA Market Penetration 3rd Party PMA 3rd Party PMA ≈ 2½% to 3% Less than 2% Total INDUSTRY Total TDG Commercial Commercial Aftermarket $ Aftermarket $ TDG 3rd Party PMA – Below Market % & Declining 41
Slide 43: Performance Stability
Performance Stability Consistent Value Product Line Detail Creation Value Creation Focus Strategy Consistent Strategy Product Line Detail Focus Solid Value Growth Process Active Talent Growth Disciplined Disciplined Acquisition Integration Active Talent Acquisition Growth Integration 42
Slide 44: 5 YR Go Forward Market Estimates - CAGR
5 YR- Go Forward Market Estimates - CAGR (Unit Growth – w/o Price) Next 5 Years TDG % Unit Growth / Yr Commercial Aftermarket Up LSD to MSD % Gradual Recovery Commercial Transport OEM Up LSD % Business Jet / Helicopter OEM* Up LSD to MSD % Defense Up LSD % Potentially Richer Mix *Includes General Av
Slide 45: Management Process and Value Creation
Management Process and Value Creation Jorge Valladares – COO Power & Control
Slide 46: TDG Organization
TDG Organization Nick Howley Executive Chairman Bob Henderson Kevin Stein Vice President & Chairman CEO Halle Terrion Jorge Valladares Jim Skulina Bernie Iversen General Counsel COO - Power CFO M&A & CCO EVP EVP EVP EVP EVP EVP 5-7 Op Units 5-7 Op Units 5-7 Op Units 5-7 Op Units 5-7 Op Units 5-7 Op
Slide 47: Executive Vice President Role
Executive Vice President Role EVP Value Creation Driver/Culture Carrier Op Unit 1 Op Unit Business Guidance Quarterly Reviews Presidential “coaching” Op Unit 2 Value Driver Emphasis Op Unit 3 Talent Development New President/Staff President Weed & Feed Last Year Acquisition Acquisition Val
Slide 48: Organizational Philosophy
Organizational Philosophy Structure Execution Motivation Small Operating Units Significant Local Think Like Owner Autonomy Focus on Products and Create Value Customers Local Decisions Lower Cash Comp & Few Management Layers Higher Equity Front Line Value Generation Business Unit Discipline Price Pro
Slide 49: Operating Unit Organization
Operating Unit Organization President Director Sales Director Director Controller & Marketing Operations Engineering Business Unit Business Unit Manager Team Business Unit Business Unit Manager Team Business Unit Teams Co-Located Business Unit Business Unit Detail Value Focused Manager Team Ne
Slide 50: 34 Operating Units 85+ Business Units
Business Unit Value Focus 34 Operating Units 85+ Business Units 49
Slide 51: Proven Operating Strategy
Proven Operating Strategy Productivity and Profitable New Value Based Cost Business Pricing Improvements 3 Value Drivers 50
Slide 52: Business Unit Value Creation
Business Unit Value Creation Business Unit Teams Grouping of Related Products Integrated Cross Functional Team Business Unit Manager Drives Performance Value Driver Focus Profitable New Business Productivity and Cost Improvement Value-based Pricing Accountability Standardized Business
Slide 53: New Business
New Business Drives Organic Growth Customer-Driven Business Opportunities Focus on Profitable Innovative State of the Art Solutions New Business Responsive and Agile Development 52
Slide 54: New Business How We Do It
New Business “How We Do It” Customer Relationships Strong Operational Performance Engineer to Engineer Selling Existing Part Solve Customer Technical Issues with New Customer New Part Innovation New Part with with Existing New Technology/Processes New Customer Customer Rapid Prototype Deve
Slide 55: New Business Modeling
New Business Modeling Analytical Approach EXAMPLE ONLY Data Driven New Business Model Excerpt 2018 2019 2020 2021 2022 2023 Realistic OEM Production Rates Annual Data Production Sales NRE $507 $765 $968 $1,318 $1,536 Historical NRE Investment Estimates Production COS Product Margin ($475) ($44
Slide 56: Productivity
Productivity Annual Productivity Improvements to Offset Inflation Across Total Cost Base 55 55
Slide 57: Detailed Cost Reduction Planning
Detailed Cost Reduction Planning YTD Projects YTD Plan Plan FY Forecast Vendor LTAs / Resourcing 525 Enacted 764 700 764 Measure the Goals Commodity Hedge 75 44 100 75 Various Purchasing Initiatives 338 444 450 550 Schedule and Savings Purchasing Savings 938 1252 1,250 1,389 Outsourcing Domestic
Slide 58: Sales Per Head
Sales Per Head Average Heads Sales Per Head Improving Trends Year 1 2 3 4 5 6 Note: For Illustration Only 57 57
Slide 59: Price
Price YTD Product Line “A” Pricing Results Percent Increase YTD FY Plan Inflation Comm Trans OEM Reg Bus Jet OEM Defense OEM Comm Aftmkt Gov Aftmkt Total Note: For Illustration Only 58
Slide 60: Business Unit – Income Statement
Business Unit – Income Statement 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
Slide 61: Business Unit Structure – Driving Value Creation
Business Unit Structure – Driving Value Creation Consistent Value Generation Detailed Accountability Clear Metrics Value Creation Focus 60
Slide 62: Growing Value Requires Growing Talent
Growing Value Requires Growing Talent Talent Demand Organic Growth & Acquired Growth & Mgt. Turnover Mgt. Transitions Growth Requires Talent 61
Slide 63: Talent Distribution
Talent Distribution Talent Pool Weed-out or Promote Develop Expand Test Weed-out Promote Low High 62
Slide 64: Talent Development
Talent Development Financial Competency Value Creation Contracting Income Balance Risk Management Statement Sheet I.P. Protection Value Pricing New Business Productivity Aftermarket Access Modeling Management Pricing Business Unit Reviews Site Visits & Operational Reviews 63
Slide 65: Succession, Development, Promotion
Succession, Development, Promotion President HR, QC Dir of S&M Dir of Eng Dir of Mfg Controller Other Prod Line Mgr Eng Lead Mfg Mgr Key Positions Dir S&M Dir Mfg Prod Line Mgr Mfg Manager New Acquisition Existing Unit President OR President HR, QC HR, QC Dir of S&M Dir of Eng Dir of Mfg. Controller
Slide 66: Executive Development
Executive Development (30) High Potential Sr. Managers Customized Curriculum Team Based Action Learning Projects Individual Development Plan Formal Mentoring Program 65
Slide 67: Talent Development- Promotions
Talent Development- Promotions LTM Promotions Source External 16% Internal 84% 66
Slide 68: Performance Stability
Performance Stability Solid Value Growth Process Consistent Value Creation Strategy Business Unit Detail Focus Active Talent Growth 67
Slide 69: Mergers & Acquisitions
Mergers & Acquisitions Bernie Iversen – Executive VP – M&A Mike Lisman – Vice President – M&A
Slide 70: Focused Acquisition Strategy
Focused Acquisition Strategy Aerospace products Proprietary engineered products Significant aftermarket content 69
Slide 71: Acquisition History
Acquisition History Fiscal Year $ Invested FY ‘08 $156 M FY ‘09 $156 M FY ‘10 $170 M FY ‘11 $1.65 B FY ’12 $869 M FY ‘13 $484 M FY ‘14 $298 M FY ‘15 $1.62 B FY ’16 $1.44 B FY ‘17 $105 M FY ‘18F $575 M* Annual Average = $676 M per Year *FY18 includes $50M for Kirkhill and $525M for Extant 70
Slide 72: FY17 and FY18 in Review
FY17 and FY18 in Review Invested $680M Stayed within Acquisition Criteria 2017 2018 2018 Price: $105M Price: $50M Price: $525M Sellers: Various Seller: Esterline Seller: Warburg Pincus 71
Slide 73: M&A Organizational Structure
M&A Organizational Structure M&A Org Chart Strong and stable team Bernie Iversen EVP – M&A Rotational Director role Mike Lisman VP – M&A Utilize Brokers to assist in Director Director M&A M&A US & Europe (Rotational) U.S. Europe Broker Broker 72
Slide 74: Maintain Active Pipeline of Potential M&A Targets
Maintain Active Pipeline of Potential M&A Targets Visit, Visit, Visit! Privately Held / Family-Owned Conferences / Shows Private Equity Ownership Networking Strategic Owners 73
Slide 75: Active Acquisition Process
Active Acquisition Process Typical Results Typical Multiple: 9 – 12x EBITDA Post Acquisition: Significant multiple reduction * Note: Excludes Schroth. 74
Slide 76: Acquisition Sourcing – Since IPO
Acquisition Sourcing – Since IPO Number of Businesses EBITDA at Time of Acquisition 22% 23% 34% 16% 62% 43% Strategic Private Holder Private Equity Note: Statistics include businesses acquired but later divested. 75
Slide 77: Proven Record of Acquisition & Integration
Proven Record of Acquisition & Integration Privately Held NYSE 1993 – 2006 2006 – 2010 2011 – 2014 2015 – 2018 Adel Sweeney Talley Actuation Telair International Telair Aeroproducts Electra-Motion Schneller AAR Cargo Systems Wiggins CDA InterCorp. Harco Nordisk Aviation Con
Slide 78: Acquisition Metrics – Weighted Historical Values
Acquisition Metrics – Weighted Historical Values (Excluding Divestitures) Sole Source 100% 89% 88% 84% 83% 83% 81% 78% 80% 77% 80% 71% 74% 66% 60% 40% 20% 0% FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Avg. Commercial vs. Military OEM vs. Aftermarket 100% 100% 80% 80% 60% 60% 40% 40% 20%
Slide 79: What We Don't Look For
What We Don’t Look For • Synergy • Bigger is better • Market share • Globalization • Fill out product line • Diversify • Excess capacity • Consolidating Industry • Access to markets • Spend $ to make $ • Blah, Blah, blah • Blah, Blah, blah • Get fee • Name in Paper • Get promoted • Increase salary •
Slide 80: What We DO Look For
What We DO Look For CREATING SHAREHOLDER ALUE
Slide 81: Investment Evaluation
Investment Evaluation Purchase Price / Capital Structure EBITDA $ 16,500 Multiple 10.0 Purchase Price $165,000 Fees $1,750 Total Purchase Price $166,750 Leverage Multiple 5.5 Debt 5.5x Current Year EBITDA $90,750 Equity Required $76,000 Total $166,750 Debt & Equity Investment Year 1 Year 2 Year 3 Ye
Slide 82: Common Issues Identified During Diligence
Common Issues Identified During Diligence Excessive costs Sub optimal pricing Unfocused new business process 81
Slide 83: Actual Performance – Example 1
Actual Performance – Example 1 Acquisition Model EBITDA Bridge Actual / FCST EBITDA Bridge 2015 Price Productivity New Biz & 2020 2015 Price Productivity New Biz & 2018 Fcst Market Market (Volume) (Volume) EBITDA already considerably ahead of model – creating significant value 82
Slide 84: Actual Performance – Example 2
Actual Performance – Example 2 Acquisition Model EBITDA Bridge Actual / FCST EBITDA Bridge 2016 Price Productivity New Biz & 2021 2016 Price Productivity New Biz & 2018 FCST Market Market (Volume) (Volume) EBITDA will be just below Year 5 model target in only 2.5 years of ownership 83
Slide 85: Acquisition Process & Integration
Acquisition Process & Integration Bob Henderson – Vice Chairman
Slide 86: Acquisition Integration Process – What Do We Do?
Acquisition Integration Process Now That We Own It WHAT DO WE DO?! 85
Slide 87: Acquisition Integration Process - General
Acquisition Integration Process - General Basics – All Acquisitions are Different • Past Operating History Impacts Model and Integration Needs/Process • Different Value Generation Approaches in Acquisition Model • Consolidate or Stand Alone – Productivity Opportunities • Contractual Opportunities &
Slide 88: Acquisition Integration Process - Timeline
Acquisition Integration Process - Timeline Time After Actions - General Acquisition (days) Present TransDigm, Our Culture and Value Generation Strategy ………………. 0 - 15 Control Working Capital and Establish Financial Plan ………………………………… 0 - 90 Evaluate Key Staff Personnel Competency …………………………………
Slide 89: Young & Franklin Inc. / Tactair
Young & Franklin Inc. / Tactair September 2016 Headquartered in Liverpool, NY Revenue: ≈ $75 M Employees: ≈ 320 88
Slide 90: Young & Franklin Inc. / Tactair
Young & Franklin Inc. / Tactair Commercial Aftermarket Aerospace 70% 70% 70% Military OEM IGT 30% 30% 30% Key Platforms Key Activities / Observations • Privately owned. HQ outside Syracuse, NY MRJ C 130J E2 E2D • Two business segments & two facilities: CL300 CH47 • Tactair (70% of sales) – Hydraulic
Slide 91: FY 2017 Bolt-On Acquisitions ≈ $32 M Revenue
FY 2017 “Bolt-On” Acquisitions ≈ $32 M Revenue Private Party Seller Private Equity Seller Private Party Seller Moved to AdelWiggins Moved to AeroControlex Moved to DDC- part of DDC’s Beta Transformer Connectors and hose assemblies Control Cable Assemblies Technology Corporation for f
Slide 92: Kirkhill Inc.
Kirkhill Inc. March 2018 Headquartered in Brea, CA Revenue: ≈ $90 M Employees: ≈ 800 91
Slide 93: Kirkhill Inc.
Kirkhill Inc. Commercial 50% Key Activities / Observations • Esterline divested of Kirkhill Defense 50% • $50M PP (0.5x Sales multiple) • Good positions on Next Generation Aircraft Key Platforms • Opportunities to improve profitability 777X • Primarily proprietary, soul source with 787 significant a
Slide 94: Extant Aerospace
Extant Aerospace April 2018 Headquartered in Melbourne, FL Revenue: ≈ $85 M Employees: more than 170 93
Slide 95: Extant Aerospace
Extant Aerospace Commercial Aftermarket 20% 80% Defense OEM 80% 20% Key Platforms Key Activities / Observations F-16 AH64 • Warburg Pincus was owner F-18 MD 900/902 • Manufactures legacy aerospace and defense products F-15 B747 • Exclusively acquires licenses or product lines from OEMs UH-60 B757 Ap
Slide 96: Product Presentation Breakout
Product Presentation Breakout Presentations Starting Location Roger Jones DDC EVP Group – A Mike Yates Tactair/Young & Franklin President, Tactair/Y&F Ballroom (Main Floor) Mike Hargas AeroControlex President, AeroControlex Group – B Paula Wheeler AeroFluid Products President, AeroFluid Products Bal
Slide 97: Financial Overview
Financial Overview Jim Skulina - CFO
Slide 98: Historical Financial Highlights
Historical Financial Highlights Revenue EBITDA as Defined ($ in millions) (1) ($ in millions) (1) $1,855 $3,780 $1,711 $3,504 $3,171 $1,495 $2,707 $1,234 $2,373 $1,073 $1,924 $900 47% 45% 46% 47% 49% 49% 2013 2014 2015 2016 2017 2018E 2013 2014 2015 2016 2017 2018E EBITDA % margin Adjusted Earnings
Slide 99: Private Equity-Like Capital Structure
“Private Equity-Like Capital Structure” Total Debt vs Market Cap Financial Leverage (in billions) 20 18 16 14 Debt Equity 12 10 8 6 4 2 - (1) (1)(2) 2011 2012 2013 2014 2015 2016 2017 PF 3/18 Debt Market Cap (1) FY17 & PF 3/18 stock prices are adjusted for $46 of special dividends paid in FY 2017. (
Slide 100: Significant Free Cash Flow
Significant Free Cash Flow Free Cash Flow Before Working Capital Exceeds 50% of EBITDA As Defined 100% $1,000 $914 $867 90% $819 80% $800 $653 70% $622 $546 60% $600 $482 50% $328 40% $400 30% 20% $200 10% 0% $- 2011 2012 2013 2014 2015 2015 2017 2018 LTM Post Financing 3/30/18 Expectation Cash Inte
Slide 101: Fiscal 2018 Financing Events
Fiscal 2018 Financing Events November 2017 Repriced Term Loans E & F February 2018 Repriced Term Loan G May 2018 Issued $500M of new senior subordinated notes in the UK due 2026 Issued new $700M to Term Loan E Extended Term Loan E to 2025 Repriced $5.1B of existing Term Loans E & F June
Slide 102: Pro Forma Capitalization Structure
Pro Forma Capitalization Structure Pro forma capitalization Pro forma ($ in millions) 3/30/18 Adj. 3/30/18 (1) Rate Maturity Cash $1,011 $654 $1,665 $600mm revolver – – – L + 3.000% Feb-20 $350mm AR securitization facility 300 – 300 L + 0.900% Aug-18 First lien term loan E due 2025 1,496 759 2,255 L
Slide 103: Debt Maturity Profile and Interest Rates
Debt Maturity Profile and Interest Rates Old Debt Maturity Profile ($MM) 4,000 Weighted Average 3,000 Interest Rate $1,200 2,000 $1,150 $3,637 Pre-Financing 1,000 $1,496 $1,805 0 $300 $550 $750 $950 5.3% 2018 2019 2020 2021 2022 2023 2024 2025 2026 Secured Loans Sr. Sub Notes New Debt Maturity Profi
Slide 104: Sources and Uses of Recent Financing
Sources and Uses of Recent Financing Sources & Uses ($ in millions) Sources Incremental first lien loan E/F $700 New senior subordinated notes 500 Total sources $1,200 Uses Acquisition of Extant $525 Cash to the balance sheet 654 Financing related fees 21 Total uses $1,200 103 103
Slide 105: Dry Powder Available for Acquisitions
Dry Powder Available for Acquisitions Dry Powder in Excess of $2 B Available Pro Forma Cash 3/30/2018 $ 1,665 Undrawn Revolver 600 Dry Powder Available for Acquisitions $ 2,265 ** Does not include New Debt on Acquisition Target EBITDA 104
Slide 106: Shareholder Return Dividends – Return of Capital %
Shareholder Return Dividends – Return of Capital % Operational Performance Financial Leverage 105
Slide 107: Superior Results
Superior Results Historical TDG Returns vs. SP 500 40% 36% 35% 30% 26% 25% 24% “Private Equity- 20% Like” Returns 15% 14% with 12% Public Liquidity 10% 8% 5% 0% 10 YR Return 5 YR Return 1 YR Return CAGR CAGR CAGR (1) (2) TDG S&P 500 (1) TransDigm returns are adjusted for special dividends paid of $1
Slide 108: APPENDIX: Reconciliation of EBITDA and EBITDA As Defined to Net Income
APPENDIX: Reconciliation of EBITDA and EBITDA As Defined to Net Income ($ in millions) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Income from continuing ops. ($5) $0 $1 $3 $14 ($17) $11 $14 $31 ($76) $14 $35 Depreciation and amortization 7 7 7 6 7 6 7 9 13 10 18 17 Interest expense,
Slide 109: APPENDIX: Reconciliation Net Income to Adjusted Net Income and Significant Free Cash Flow
APPENDIX: Reconciliation Net Income to Adjusted Net Income and Significant Free Cash Flow (in millions) 2013 2014 2015 2016 2017 Net income from continuing operations $ 303 $ 307 $ 447 $ 586 $ 629 Gross adjustments from EBITDA to EBITDA as Defined 107 181 84 121 130 Purchase accounting backlog amort