Transdigm Group Inc. · NYSE:TDG
Transdigm — Non-Deal Roadshow (May 2017)
54 slides from Transdigm's roadshow presentation, May 2017
Slide 1: TransDigm Non-Deal Roadshow May 2017
TransDigm Non-Deal Roadshow May 2017
Slide 2: Agenda
Agenda TransDigm Overview Nick Howley Chairman and CEO TransDigm Organic Growth & Outlook Nick Howley Chairman and CEO Consistent Operating Model & Customer Value Kevin Stein President and COO Financial Topics Terrry Paradie Executive Vice President and CFO Q&A 1
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: Shareholder's Value Proposition
Shareholder’s Value Proposition “Private Equity-Like Growth in Value with Liquidity of a Public Market” + 15% - 20% / Year on Average 4
Slide 6: 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 7: Company Overview
Company Overview Business Snapshot FY 2017 ($ in millions) Guidance FY 2015 FY 2016 Mid-point (2) Revenue $ 2,707 $ 3,171 $ 3,550 EBITDA as Defined (1) $ 1,234 $ 1,495 $ 1,703 EBITDA as Defined margin 46% 47% 48% Formed 1993 Enterprise Value ≈ $24 Billion (3) (1) EBITDA as Defined is a non-GAAP fina
Slide 8: Diverse Products, Platforms and Markets
Diverse Products, Platforms and Markets 7
Slide 9: Consistent Record of Growth and Margin Expansion
Consistent Record of Growth and Margin Expansion ($ in millions) ($ in millions) Revenue $3,550 (1) EBITDA as Defined and Margin (1) $1,703 $3,171 $1,495 $2,707 $1,234 $2,373 $1,073 $1,924 $900 $1,700 $809 $1,206 $590 $828 $412 $762 $375 $714 $333 $593 $275 $435 $374 $194 $293$301 $164 $249 $124$139
Slide 10: 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) 9
Slide 11: 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 12: Proven Operating Strategy
Proven Operating Strategy Profitable Productivity Value Based New and Cost Pricing Business Improvements 3 Value Drivers 11
Slide 13: Proven Record of Acquisition & Integration
Proven Record of Acquisition & Integration Privately Held NYSE 1993 – 2006 2006 – 2010 2011 – 2012 2013 - 2017 Adel Sweeney Hartwell Beams Aeroproducts Electra-Motion Electromech Aerosonic McKechnie Wiggins CDA InterCorp. Tyee Arkwin Controlex Avtech TAC Whippany Actu
Slide 14: Steady Long Term Growth in Stock Value
Steady Long Term Growth in Stock Value ≈ 30% CAGR ≈ 32% CAGR Last 10 Yrs (1) Last 5 Yrs (2) 35% 30% 25% 20% CAGR 15% 10% Dividends Stock Price 5% 0% 10YR (2006-2016) 5YR (2011-2016) (1) 10 year return reflects beginning 3/15/2006 opening stock price of $23.95, ending 12/30/2016 closing stock price o
Slide 15: TDG Organic Growth & Outlook
TDG Organic Growth & Outlook Definition of Acronyms: LSD = Low Single-Digit Percent Growth MSD = Mid Single-Digit Percent Growth HSD = High Single-Digit Percent Growth LDD = Low Double-Digit Percent Growth 14
Slide 16: TDG Unit Volume Growth vs. Peers
TDG Unit Volume Growth vs. Peers (excluding price) – 5/6 Years ≈ % TDG CAGR CAGR TDG vs. Market Performance Sales Peers (2) TDG (1) Market Commercial Aftermarket Crane Heico Honeywell 40% Flat Up LSD % Meggitt Rockwell Collins UTAS Commercial Transport OEM Boeing 20% Up HSD % Up HSD % to LDD% Airbus
Slide 17: Commercial Aftermarket Trends
Commercial Aftermarket Trends Commercial Aftermarket Growth 6 Yr Avg 5 Yr Avg 25.0% TDG 9.1% 6.6% Peer Group 6.6% 4.1% (1) 20.0% 15.0% 10.0% 5.0% (1) 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
Slide 18: Commercial Aftermarket Theories
Commercial Aftermarket Theories PMA Parts Pooling/Inventory Surplus Parts Out of Warranty Fleet 17
Slide 19: TDG PMA SKU's
TDG PMA “SKU’s” Example: End Item – PMA: 1 Possibly Sell (1): 50+ Actually Sold: 20 (we use this #) (1) Saleable Parts, Subassemblies on Component Maintenance Manual (CMM) Illustrated Parts List (IPL) 18
Slide 20: TDG PMA SKU's Growing Substantially
TDG PMA SKU’s– Growing Substantially ≈20,000 Average New TDG PMAs / Yr - Last 5 years Total PMA’s Over 400,000 (1) Active PMA’s Over 300,000 (2) Compared to ≈130 Average of New 3rd Party PMAs on TDG Parts / Yr - Last 5 years (1) (2) Total PMA – assemblies, parts and sub-assemblies currently on F
Slide 21: PMA Market Penetration
PMA Market Penetration 3rd Party PMA 3rd Party PMA Less than 2% ≈ 2 ½% to 3% Total TDG Commercial Total Industry Commercial Aftermarket $ Aftermarket $ TDG 3rd Party PMA – Below Market % & Declining 20
Slide 22: Surplus Parts Minimal TDG Impact
Surplus Parts Minimal TDG Impact Surplus Sales Market Penetration Below 2% Surplus 10% Surplus TDG Below Market % (1) Industry 21 Source: Management Analysis
Slide 23: Commercial Transport Extended Production Cycle = Lower Aftermarket Growth
Commercial Transport Extended Production Cycle = Lower Aftermarket Growth Commercial Transport – Total Deliveries 55 Year History 14 years + 1800 1600 6 years 1400 7 years 1200 4 years 4 years 1000 800 600 400 200 0 Source: Airline Monitor 22
Slide 24: Over 5 Yr Aircraft – Slower Fleet Growth & Lower Utilization
Over 5 YR Aircraft – Slower Fleet Growth & Lower Utilization % / Yr Growth Hours / Day by Age 8% 7% 12 6% 10 5% 2.8% 8 4% 6 3% 4 2% 1% 2 0% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 5 Yrs & Less Over 5 Yrs Over 5 Yr Old Fleet Growth (1) Over 5 Yr Old Daily Uti
Slide 25: Freight Market – About Flat
Freight Market – About Flat FedEx and UPS Global Air Cargo Traffic (1) 30% 20% Worldwide air cargo traffic (you growth) 10% 0% -10% -20% -30% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FedEx UPS (1) Source: Goldman Sachs Research and Bureau of Transportation Statistics (De
Slide 26: TDG Commercial Aftermarket Unit Growth Last 5/6 Yrs
TDG Commercial Aftermarket Unit Growth Last 5/6 Yrs (Unit Growth (w/o price)) Commercial % TDG TDG CAGR % / YR (1) Comment Aftermarket Commercial Aftermarket Comm Tr- Passenger 70% Up LSD to MSD % Over 5 yr fleet growth / lower average utilization Comm Tr - Freight 15% Down Slightly Cargo systems up
Slide 27: TDG Commercial Transport OEM By Platform
TDG Commercial Transport OEM By Platform Well Positioned For Growth 2016 Run Rate Higher $/Yr 2021 Run Rate 2016 % Rev Model (1) 2021 % Rev Model (1) Platform A320 A350 B737 B737 max B787 A320 NEO A350 B787 B777 A330/340 A330/340 75% B777x 81% A380 C-Series/CRJ C-Series/CRJ A380 B747 Bombardier Q400
Slide 28: 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 29: 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/MSD % Prior Platforms B777X Prior Platforms A320neo Prior Platforms B737max Representative Products: Representative Products: Representative Prod
Slide 30: TDG Defense OEM By Platform
TDG Defense OEM By Platform 2016 Run Rate Higher $/Yr 2021 Run Rate Platform 2021 % Rev Model (3) 2016 % Rev Model (3) Parachutes (1) Parachutes (1) A400M A400 M UH60/Blackhawk (2) F-35 (JSF) C-130 UH-60 (2) S-92 C-130 CH-47 63% S-92 63% F35 (JSF) AH64-Apache AH-64 – Apache CH-47 KC 46/767 KC-46 /76
Slide 31: New Defense Platforms – New Designs
New Defense Platforms – New Designs – “Same Store Basis” JSF A400M KC46 (767) + MSD % + ≈ 3X + ≈ 2X Prior Platforms JSF Prior Platforms A400M Prior Platforms KC46 (767) Representative Products: Representative Products: Representative Products: • Hydraulic Actuators/Valves • Cargo Loading System • Re
Slide 32: 5 Yr Go Forward Market Estimates - CAGR
5 YR- Go Forward Market Estimates - CAGR (Unit Growth – w/o Price) Last 5 Years TDG Next 5 Years TDG Vs. Last % Unit Growth / Yr % Unit Growth / Yr 5 Years Commercial Aftermarket Up LSD % Up LSD to MSD % Gradual Recovery Commercial Transport OEM Up HSD to LDD % Up LSD % Business Jet / Helicopter OEM
Slide 33: 5 Yr Go Forward Estimated Growth
5 Yr Go Forward Estimated Growth (wo/ACQ) % / Yr 12% TDG Estimated Organic Growth (1) range 9% range Growth %/YR 6% 3% 0% Revenue EBITDA (1) Based on market assumptions listed on slide 31. Assuming no additional acquisitions. 32
Slide 34: Consistent Operating Model & Customer Value
Consistent Operating Model & Customer 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 Operating System: A Detailed Process
TDG Operating System: A Detailed Process Investment Highly Engineered Products Require Resourcing ~7% of total cost spent on Engineering Organization BUM Team Concept Succession Planning Execution Relentless Drive to Create Value 35
Slide 37: TDG Organization
TDG Organization Bob .................... Henderson Vice Chair EVP Role Scalable With Future Growth 36
Slide 38: Business Unit Teams
Business Unit Teams KEY TAKEAWAY: Business Co-LocatedUnit Teams – Cross Functional, Co-Located, With a BUM Leader Business Unit Manager Engineers Manufacturing Quality Purchasing/Planning Customer Service Run Your Business Like You Own It 37
Slide 39: Delivery Performance
Delivery Performance Note: For Illustration Only “High TransDigm Customer Loyalty - Driven by On-time Delivery, Lead Time and Broad Product Offering” – Survey Results 38 38
Slide 40: Proven Operating Strategy
Proven Operating Strategy Profitable Productivity Value Based New and Cost Pricing Business Improvements 3 Value Drivers 39
Slide 41: Value Generator: Productivity
Value Generator: Productivity TDG Cultural Elements • Simple Focus • Clear Expectations/Accountability ACTIVE • Visible Leadership LEADERSHIP • Bias to Action- Act Like an Owner 40
Slide 42: Steady Trackable Productivity Improvements
Clear Goal – Detailed Execution Steady Trackable Productivity Improvements Across Total Cost Base 41 41
Slide 43: Sales Per Head
Sales Per Head If we are PRODUCTIVE we should be able to produce Average Heads increased volume with the Sales Per Head same number of people Improved Margin Creating Value Year 1 2 3 4 5 6 We don’t compare sites. Note: For Illustration Only We look for improvement trends. 42 42
Slide 44: Detailed Cost Reduction Planning
Detailed Cost Reduction Planning YTD Projects YTD Plan Plan FY Forecast • Measure the Goals Enacted Vendor LTAs / Resourcing 525 764 700 764 Commodity Hedge 75 44 100 75 Various Purchasing Initiatives Purchasing Savings 338 938 444 1252 450 1,250 550 1,389 • Schedule and Savings Outsourcing Domestic
Slide 45: Value Generator: Price
Value Generator: Price • Price to reflect value • Detailed tracking Note: For Illustration Only % Price Analysis By Market Segment 44
Slide 46: Value Generator: Profitable New Business
Value Generator: Profitable New Business Note: For Illustration Only 45
Slide 47: Sample New Business Products In Last 12 Months
Sample New Business Products In Last 12 Months Product Lines Fresh & Well Positioned 46
Slide 48: Customer Value Proposition
Customer Value Proposition Provide Reliable, Well Engineered Products & Deliver Them On-Time Highest Value to Customers 47 47
Slide 49: Financial Topics
Financial Topics 48
Slide 50: 5 Yr Go Forward Model Assumptions (w/o Acquisitions)
5 Yr Go Forward Model Assumptions (w/o Acquisitions) Weighted Avg Interest Rate: 5% to 6% Cash Tax Rate: 25% to 30% Capex: ≈ 2% of Sales Leverage & Cash on Hand: No Significant Change to Current Strategy Continued Strong Free Cash Flow Generation 49
Slide 51: Capital Structure and Maturity Profile
Capital Structure and Maturity Profile Net Debt to Pro Pro Forma Capitalization Forma EBITDA As ($ in millions) Actual 4/1/2017 Defined Multiple Rate Cash $985 $600m revolver – L + 3.00% $250m AR securitization facility 200 L + 0.90% First lien term loan C due 2020 1,222 L + 3.00% First lien term lo
Slide 52: Interest Rate Sensitivity Analysis
Interest Rate Sensitivity Analysis ($ in millions) TDG Weighted Average Pre-Tax After-Tax (1) Cash Cash Cash Cash LIBOR % Interest Exp $ Interest Rate % Interest Exp $ Interest Rate % Current → 1.0% $ 580 5.2% $ 400 3.6% 2% $ 620 5.6% $ 430 3.9% 4% $ 685 6.1% $ 470 4.2% 6% $ 740 6.6% $ 510 4.6% (1)
Slide 53: 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 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Income from continuing ops. ($5) $0 $1 $3 $14 ($17) $11 $14 $31 ($76) $14 $35 $25 $89 $133 $163 $1
Slide 54: APPENDIX: FY 2017 Guidance Mid-point GAAP to Adj EPS Reconciliation and Assumptions
APPENDIX: FY 2017 Guidance Mid-point GAAP to Adj EPS Reconciliation and Assumptions Year Ended ($ in millions) September 30, 2017 (guidance mid-point) Net income $612 Adjustments: Depreciation and amortization expense 140 Interest expense - net 600 Income tax provision 237 EBITDA 1,589 Adjustments: