TransDigm Group Reports Fiscal 2020 Third Quarter Results
Third quarter highlights include:
- Net sales of
$1,022 million , down 32.8% from$1,521 million in the prior year's quarter; - Loss from continuing operations of
$(5) million ; - Loss per share from continuing operations of
$(0.09) ; - EBITDA As Defined of
$424 million , representing a margin of 41.5%; - EBITDA As Defined of
$424 million is down 35.7% from$659 million in the prior year's quarter; - Adjusted earnings per share of
$1.54 , down 66.9% from$4.65 ; and - Strong operating cash flow generation of
$397 million .
Fiscal 2020 financial guidance remains suspended due to COVID-19 pandemic.
Quarter-to-Date Results
Net sales for the quarter declined 32.8%, or
Loss from continuing operations for the quarter was
Adjusted net income for the quarter decreased 66.4% to
EBITDA for the quarter decreased 24.8% to
"Throughout our third fiscal quarter much of the global fleet was grounded and there was a substantial reduction in both passenger demand and air traffic due to the COVID-19 pandemic and the ensuing widespread lockdowns. Despite these headwinds, I am pleased that we were able to achieve an EBITDA As Defined margin of 41.5% as a result of swift and purposeful management of our cost structure," stated Kevin Stein, TransDigm Group's President and Chief Executive Officer. "These circumstances required actions that were necessary, but difficult to implement. We are better positioned as a Company to endure and emerge strongly from the ongoing weakness in our primary commercial end markets. In the past few months, initial signs of a recovery in commercial aerospace have emerged with commercial airlines bringing more of the fleet back into service. We will remain focused and diligent in our management of the details as much uncertainty remains about the duration of the pandemic and pace of recovery."
The effective tax rate in the current quarter was negatively impacted due to the unfavorable economic impact of the COVID-19 pandemic on the Company's net interest deduction limitation and a discrete cumulative adjustment associated with excess tax benefits from share based payments. The current effective tax rate was 113.5% compared to 30.0% for the comparable period of fiscal 2019. For the full 2020 fiscal year, the Company expects the effective tax rate to be 17% to 19%.
During the quarter, on
Year-to-Date Results
Net sales for the thirty-nine week period ended
Income from continuing operations for the thirty-nine week period ended
GAAP earnings per share were reduced in fiscal 2020 and 2019 by
Adjusted net income for the thirty-nine week period ended
EBITDA for the thirty-nine week period ended
Please see the attached tables for a reconciliation of (loss) income from continuing operations to EBITDA, EBITDA As Defined, and adjusted net income; a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined, and a reconciliation of earnings per share to adjusted earnings per share for the periods discussed in this press release.
Fiscal 2020 Outlook
Given the considerable uncertainty around the extent and duration of business disruptions related to the COVID-19 pandemic, and how that will impact operations, the Company suspended its previously provided fiscal year 2020 guidance.
Earnings Conference Call
The call will be archived on the website and available for replay at approximately
About
Non-GAAP Supplemental Information
EBITDA, EBITDA As Defined, EBITDA As Defined Margin, adjusted net income and adjusted earnings per share are non-GAAP financial measures presented in this press release as supplemental disclosures to net income and reported results.
None of EBITDA, EBITDA As Defined, EBITDA As Defined Margin, adjusted net income or adjusted earnings per share is a measurement of financial performance under GAAP and such financial measures should not be considered as an alternative to net income, operating income, earnings per share, cash flows from operating activities or other measures of performance determined in accordance with GAAP. In addition,
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 not consider any of them in isolation, or as a substitute for analysis of our results of operations as reported in accordance with GAAP. Some of these limitations are:
- neither EBITDA nor EBITDA As Defined reflects the significant interest expense, or the cash requirements necessary to service interest payments, on our indebtedness;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor EBITDA As Defined reflects any cash requirements for such replacements;
- the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of EBITDA and EBITDA As Defined;
- neither EBITDA nor EBITDA As Defined includes the payment of taxes, which is a necessary element of our operations; and
- EBITDA As Defined excludes the cash expense we have incurred to integrate acquired businesses into our operations, which is a necessary element of certain of our acquisitions.
Forward-Looking Statements
Statements in this press release that are not historical facts, including statements under the heading "Fiscal 2020 Outlook," are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "may," "will," "should," "expect," "intend," "plan," "predict," "anticipate," "estimate," or "continue" and other words and terms of similar meaning may identify forward-looking statements.
All forward-looking statements involve risks and uncertainties that could cause
Contact: |
Investor Relations |
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216-706-2945 |
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CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME |
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FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED |
Table 1 |
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(Amounts in millions, except per share amounts) |
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(Unaudited) |
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Thirteen Week Periods Ended |
Thirty-Nine Week Periods Ended |
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|
|
|
|
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|
$ |
1,022 |
$ |
1,521 |
$ |
3,930 |
$ |
3,682 |
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COST OF SALES |
531 |
808 |
1,819 |
1,755 |
||||||||||||
GROSS PROFIT |
491 |
713 |
2,111 |
1,927 |
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SELLING AND ADMINISTRATIVE EXPENSES |
163 |
252 |
544 |
535 |
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AMORTIZATION OF INTANGIBLE ASSETS |
42 |
38 |
128 |
80 |
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INCOME FROM OPERATIONS |
286 |
423 |
1,439 |
1,312 |
||||||||||||
INTEREST EXPENSE - NET |
262 |
241 |
762 |
614 |
||||||||||||
REFINANCING COSTS |
1 |
— |
27 |
3 |
||||||||||||
OTHER INCOME |
(11) |
(1) |
(14) |
(1) |
||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
34 |
183 |
664 |
696 |
||||||||||||
INCOME TAX PROVISION |
39 |
55 |
112 |
172 |
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(LOSS) INCOME FROM CONTINUING OPERATIONS |
(5) |
128 |
552 |
524 |
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(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX |
(1) |
17 |
66 |
19 |
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NET (LOSS) INCOME |
(6) |
145 |
618 |
543 |
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LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
— |
— |
(1) |
— |
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NET (LOSS) INCOME ATTRIBUTABLE TO TD GROUP |
$ |
(6) |
$ |
145 |
$ |
617 |
$ |
543 |
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NET (LOSS) INCOME APPLICABLE TO TD GROUP COMMON STOCKHOLDERS |
$ |
(6) |
$ |
145 |
$ |
432 |
$ |
519 |
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(Loss) Earnings per share attributable to |
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(Loss) Earnings per share from continuing operations - basic and diluted |
$ |
(0.09) |
$ |
2.27 |
$ |
6.38 |
$ |
8.87 |
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(Loss) Earnings per share from discontinued operations - basic and diluted |
(0.01) |
0.30 |
1.15 |
0.35 |
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(Loss) Earnings per share |
$ |
(0.10) |
$ |
2.57 |
$ |
7.53 |
$ |
9.22 |
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Cash dividends declared per common share |
$ |
— |
$ |
— |
$ |
32.50 |
$ |
— |
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Weighted-average shares outstanding: |
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Basic and diluted |
57.3 |
56.3 |
57.4 |
56.3 |
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SUPPLEMENTAL INFORMATION - RECONCILIATION OF EBITDA, |
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EBITDA AS DEFINED TO (LOSS) INCOME FROM CONTINUING OPERATIONS |
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FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED |
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(Amounts in millions, except per share amounts) |
Table 2 |
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(Unaudited) |
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Thirteen Week Periods Ended |
Thirty-Nine Week Periods Ended |
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|
|
|
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(Loss) Income from continuing operations |
$ |
(5) |
$ |
128 |
$ |
552 |
$ |
524 |
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Adjustments: |
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Depreciation and amortization expense |
70 |
63 |
211 |
138 |
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Interest expense, net |
262 |
241 |
762 |
614 |
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Income tax provision |
39 |
55 |
112 |
172 |
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EBITDA |
366 |
487 |
1,637 |
1,448 |
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Adjustments: |
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Acquisition-related expenses and adjustments (1) |
3 |
135 |
19 |
185 |
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Non-cash stock compensation expense (2) |
21 |
32 |
59 |
70 |
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Refinancing costs (3) |
1 |
— |
27 |
3 |
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COVID-19 & 737 MAX restructuring costs (4) |
30 |
— |
30 |
— |
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Other, net (5) |
3 |
5 |
8 |
6 |
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Gross Adjustments to EBITDA |
58 |
172 |
143 |
264 |
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EBITDA As Defined |
$ |
424 |
$ |
659 |
$ |
1,780 |
$ |
1,712 |
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EBITDA As Defined, Margin (6) |
41.5 |
% |
43.3 |
% |
45.3 |
% |
46.5 |
% |
(1) |
Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into |
(2) |
Represents the compensation expense recognized by |
(3) |
Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements. |
(4) |
Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic ( |
(5) |
Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to special dividend and dividend equivalent payments and stock option exercises, non-service related pension costs, deferred compensation and gain or loss on sale of fixed assets. |
(6) |
The EBITDA As Defined margin represents the amount of EBITDA As Defined as a percentage of sales. |
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SUPPLEMENTAL INFORMATION - RECONCILIATION OF |
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REPORTED (LOSS) EARNINGS PER SHARE TO |
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ADJUSTED EARNINGS PER SHARE |
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FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED |
Table 3 |
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(Amounts in millions, except per share amounts) |
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(Unaudited) |
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Thirteen Week Periods Ended |
Thirty-Nine Week Periods Ended |
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|
|
|
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Reported (Loss) Earnings Per Share |
||||||||||||||||
(Loss) Income from continuing operations |
$ |
(5) |
$ |
128 |
$ |
552 |
$ |
524 |
||||||||
Less: Net income attributable to noncontrolling interests |
— |
— |
(1) |
— |
||||||||||||
Net (loss) income from continuing operations attributable to |
(5) |
128 |
551 |
524 |
||||||||||||
Less: Special dividends declared or paid on participating securities, including dividend equivalent payments |
— |
— |
(185) |
(24) |
||||||||||||
(5) |
128 |
366 |
500 |
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(Loss) Income from discontinued operations, net of tax |
(1) |
17 |
66 |
19 |
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Net (loss) income applicable to |
$ |
(6) |
$ |
145 |
$ |
432 |
$ |
519 |
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Weighted-average shares outstanding under the two-class method |
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Weighted-average common shares outstanding |
54.1 |
53.2 |
53.9 |
53.0 |
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Vested options deemed participating securities |
3.2 |
3.1 |
3.5 |
3.3 |
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Total shares for basic and diluted (loss) earnings per share |
57.3 |
56.3 |
57.4 |
56.3 |
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(Loss) Earnings per share from continuing operations - basic and diluted |
$ |
(0.09) |
$ |
2.27 |
$ |
6.38 |
$ |
8.87 |
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(Loss) Earnings per share from discontinued operations - basic and diluted |
(0.01) |
0.30 |
1.15 |
0.35 |
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(Loss) Earnings per share |
$ |
(0.10) |
$ |
2.57 |
$ |
7.53 |
$ |
9.22 |
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Adjusted Earnings Per Share |
||||||||||||||||
Net (loss) income from continuing operations attributable to |
$ |
(5) |
$ |
128 |
$ |
551 |
$ |
524 |
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Gross adjustments to EBITDA |
58 |
172 |
143 |
264 |
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Purchase accounting backlog amortization |
14 |
14 |
42 |
19 |
||||||||||||
Tax adjustment (1) |
21 |
(52) |
(72) |
(96) |
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Adjusted net income |
$ |
88 |
$ |
262 |
$ |
664 |
$ |
711 |
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Adjusted diluted earnings per share under the two-class method |
$ |
1.54 |
$ |
4.65 |
$ |
11.57 |
$ |
12.64 |
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Diluted (Loss) Earnings Per Share to Adjusted Earnings Per Share |
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Diluted (loss) earnings per share from continuing operations |
$ |
(0.09) |
$ |
2.27 |
$ |
6.38 |
$ |
8.87 |
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Adjustments to diluted (loss) earnings per share: |
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Inclusion of the dividend equivalent payments |
— |
— |
3.22 |
0.43 |
||||||||||||
Acquisition-related expenses |
0.24 |
1.88 |
0.82 |
2.64 |
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Non-cash stock compensation expense |
0.31 |
0.40 |
0.80 |
0.91 |
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Refinancing costs |
0.01 |
— |
0.37 |
0.04 |
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Change in income tax provision due to excess tax benefits on stock compensation |
0.58 |
0.04 |
(0.56) |
(0.32) |
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COVID-19 & 737 MAX restructuring costs |
0.43 |
— |
0.42 |
— |
||||||||||||
Other, net |
0.06 |
0.06 |
0.12 |
0.07 |
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Adjusted earnings per share |
$ |
1.54 |
$ |
4.65 |
$ |
11.57 |
$ |
12.64 |
(1) |
For the thirteen and thirty-nine week periods ended |
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SUPPLEMENTAL INFORMATION - RECONCILIATION OF |
Table 4 |
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PROVIDED BY OPERATING ACTIVITIES TO EBITDA, |
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EBITDA AS DEFINED |
||||||||
FOR THE THIRTY-NINE WEEK PERIODS ENDED |
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|
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(Amounts in millions) |
||||||||
(Unaudited) |
||||||||
Thirty-Nine Week Periods Ended |
||||||||
|
|
|||||||
Net cash provided by operating activities |
$ |
991 |
$ |
768 |
||||
Adjustments: |
||||||||
Changes in assets and liabilities, net of effects from acquisitions of businesses |
(134) |
(8) |
||||||
Interest expense, net (1) |
737 |
594 |
||||||
Income tax provision - current |
129 |
167 |
||||||
Non-cash stock compensation expense (2) |
(59) |
(70) |
||||||
Refinancing costs (3) |
(27) |
(3) |
||||||
EBITDA |
1,637 |
1,448 |
||||||
Adjustments: |
||||||||
Acquisition-related expenses (4) |
19 |
185 |
||||||
Non-cash stock compensation expense (2) |
59 |
70 |
||||||
Refinancing costs (3) |
27 |
3 |
||||||
COVID-19 & 737 MAX restructuring costs (5) |
30 |
— |
||||||
Other, net (6) |
8 |
6 |
||||||
EBITDA As Defined |
$ |
1,780 |
$ |
1,712 |
(1) |
Represents interest expense excluding the amortization of debt issue costs and premium and discount on debt. |
(2) |
Represents the compensation expense recognized by |
(3) |
Represents costs expensed related to debt financing activities, including new issuances, extinguishments, refinancings and amendments to existing agreements. |
(4) |
Represents accounting adjustments to inventory associated with acquisitions of businesses and product lines that were charged to cost of sales when the inventory was sold; costs incurred to integrate acquired businesses and product lines into |
(5) |
Represents restructuring costs related to the Company's cost reduction measures in response to the COVID-19 pandemic ( |
(6) |
Primarily represents foreign currency transaction gain or loss, payroll withholding taxes related to special dividend and dividend equivalent payments and stock option exercises, non-service related pension costs, deferred compensation and gain or loss on sale of fixed assets. |
|
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SUPPLEMENTAL INFORMATION - BALANCE SHEET DATA |
Table 5 |
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(Amounts in millions) |
||||||||
(Unaudited) |
||||||||
|
|
|||||||
Cash and cash equivalents |
$ |
4,549 |
$ |
1,467 |
||||
Trade accounts receivable - net |
726 |
1,068 |
||||||
Inventories - net |
1,344 |
1,233 |
||||||
Current portion of long-term debt |
279 |
80 |
||||||
Short-term borrowings-trade receivable securitization facility |
350 |
350 |
||||||
Accounts payable |
231 |
276 |
||||||
Accrued current liabilities |
791 |
675 |
||||||
Long-term debt |
19,410 |
16,469 |
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|
(4,183) |
(2,894) |
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