TransDigm Group Incorporated (TDG)’s Q1 2015 Earnings Conference Call Transcript

The current quarter was running a little higher than the prior period primarily due to higher run rate as a percent of sales from our recent acquisitions. Interest expense was $99 million an increase of approximately $18 million or 23% versus the prior-year quarter. This is a result of an increase in the weighted average total debt to $7.5 billion in the current quarter versus $5.7 million in the prior year. The higher average debt year over year was primarily due to the amount borrowed to fund the $25 per share special dividend paid in Q3 of last year also in conjunction with the dividend we refinanced $1.6 billion of existing notes at a lower interest rate. This refinancing helped lower our weighted average cash interest rate to 5.1% compared to 5.4% to the prior year. Our effective tax rate was 32.6% in the current quarter compared to 33.6% in the prior year.

The lower effective tax rate in the quarter was primarily due to the retroactive [Inaudible] of the R&D tax credit. We still expect our effective tax rate for the full fiscal year to be around 33% & our cash taxes to be approximately $180 million. Our net income for the quarter increased $9.4 million or 11% to $95.5 million which is 16% of sales. This compares to net income of $86.1 million in the prior year. The increase in net income primarily reflects the increase in net sales, the decrease in acquisition related costs & [Inaudible] expense and a lower effective tax rate. These items were offset with the higher interest expense just discussed.

Gap earnings per share was $1.63 per share in the current quarter compared to a $1.44 per share last year. The current earnings per share growth of 13% is higher than net income growth due to lower weighted average shares outstanding resulting from repurchasing over 900,000 shares last year & slightly lower dividend equivalent payments made in the current year versus last year. Our adjusted earnings pershare was $1.80 per share an increase of 8% compared to $1.66 per share last year. Please reference Table 3 in this morning’s press release which compares and reconciles gap to adjusted EVS. Switching gears to cash & liquidity.

We ended the quarter with over $1 billion of cash on the balance sheet. The company’s net debt leverage ratio was 5.9 times our proforma EBITA as in gross leverage was 6.8 times pro forma EBITA. We still expect to generate $475 million of cash in the current year & expect our September 30/ 2015 year end net leverage to be in the 5.2 times EBITA or [Inaudible] approximately one full turn on a net basis.