Nick Howley– Chairman of the Board, Chief Executive Officer
Good morning and thanks again to everyone for calling. As usual, today I will first review our consistent business strategy then I will go through our financial performance & some market summary for Q1 2015 & then just a few comments on our guidance for the full year.
To restate we believe our business model is unique in the industryboth in its consistency & its ability to sustain & create[ inaudible] shareholder value through all phases of the cycle. To summarize a few of the reasons why we believe this about 90% of our net sales are generated by propriatary engineer products and around 3 quarters of our net sales come from products for which we believe we are the sole source provider. Over half of our revenues and a much higher percent of our EBITA come from aftermarket sales. Aftermarket revenues have historically produced a higher gross margin & have provided relative stability through the downturns. Because of our uniquely high EBITA margins & relatively low capital expenditures, TransDigm has year in year out generated very strong free cash flow. This gives us a lot of operating and capital structure flexibility. We follow a very consistent long term strategy.
First we own & operate proprietary aerospace businesses with significant aftermarket content.
Second we have a simple well-proven, value-based operating strategy focused around our three value driver concept.
Third we maintain a decentralized organization structure & a unique compensation system with executives & senior management who think, act & are paid like owners.
Fourth we acquire proprietary aerospace businesses with significant aftermarket content where we see a clear path to PE. Lastly we view our capital structure & capital allocation as another means to create shareholder value.
We basically have four alternatives for capital allocations. Our priorities are typically as follows. First invest in our existing businesses, second make accretive acquisitions consistent with our strategy, these two are almost always our first choices, third give the extra back to shareholders either through a special dividend or stock buyback and fourth pay off debt though given the low cost of the debt especially after tax. This is likely our last choice, particularly in current capital market conditions. With respect to financial capacity we have a little over $1 billion of cash roughly $ 400 million in unrestricted undrawn revolver & additional capacity under our credit agreement. We ended the quarter with a net leverage of 5.9 times EIBTA well below our credit agreement limit. At 12/27/14 or the end of the quarter based on current capital market conditions, we believe we have adequate capacity to make over $2 billion of acquisitions without issuing additional equity.
This capacity grows as the year proceeds. This does not imply anything about acquisition opportunities or anticipated acquisition levels for 2015. We did not purchase any additional shares in Q1. Now turning to our Q1 2015 performance. Remind u this is the first quarter of our fiscal year 2015. Our year started October 1. Q1 was relatively quiet. As I have said in the past quarterly comparisons can be significantly impacted by difference in the OEM aftermarket mix, large orders, inventory fluctuations, modest seasonality and other factors. But in any event total Gap revenues were up about 11% versus the prior Q1. Organic revenues were up about 3% on a first quarter versus prior year first quarter basis. Fiscal year 2015 Q1 revenues were right in line with our expectations of roughly similar percent relationship as 2014 i.e about 23% of actual full year revenues. I would remind everyone there are less shipping days in Q1 than any other quarter.
Now, reviewing the revenues by market category on a proforma basis versus the prior year Q1. By proforma I mean if we own the same mix of businesses in both periods. In the commercial markets which make up about 70% of our revenue, total commercial OEM revenues were up 6% versus the prior Q1. This is primarily driven by commercial transport OEM revenues though a modest part of our business. Our [Inaudible] OEM revenues were up about 11% year over year a bit higher than we have seen. I think this is just mostly timing. After a red hot last six months of fiscal year 2014, total commercial aftermarket revenue growth slowed down some in Q1 of 2015. On a Q1 versus prior year Q1 basis revenues were up 5% after year over year increases of around 16% in the second half of 2014. The revenue growth in Q1 versus the prior year was reduced about 1.5% to 2% by some distribution inventory movements. We could see a little more of this. Bookings for the quarter were modestly ahead of shipments in the commercial aftermarket.
