TransDigm(US:TDG)2021-05-11 21:28Financial Data and Key Metrics Changes - The company reported EBITDA of approximately $519 million for Q2, down 23% compared to the prior year [32] - EBITDA margin for the quarter was approximately 43.5%, showing a sequential improvement of nearly 100 basis points [32] - Organic growth was negative 20%, primarily driven by declines in commercial end markets despite healthy defense growth [39] Business Line Data and Key Metrics Changes - Total commercial OEM market revenue declined approximately 43% in Q2 compared to the same period last year [22] - Total commercial aftermarket revenues declined by approximately 39% in Q2 compared to the prior year, but sequentially increased by 12% [24][19] - Defense market revenue grew by approximately 8% in Q2 compared to the prior year period [31] Market Data and Key Metrics Changes - Global revenue passenger miles are still low, expected to be 57% below 2019 levels for 2021, but there is cautious optimism for recovery [26] - Domestic air traffic has shown an uptick, with airlines announcing new routes to meet anticipated demand [27] - The defense order book remains strong, with expectations for defense revenue growth in the mid single-digit percent range for fiscal 2021 [31][35] Company Strategy and Development Direction - The company focuses on intrinsic shareholder value creation through proprietary products, with about 90% of sales from such products [8] - The strategy includes managing costs tightly and ensuring substantial liquidity during downturns [13] - The company is actively looking for M&A opportunities, having acquired Cobham Aero Connectivity for $965 million [14] Management's Comments on Operating Environment and Future Outlook - Management sees signs of recovery in the commercial aerospace industry, driven by vaccine distribution and increasing air traffic [18] - There is optimism about a gradual recovery in commercial aftermarket revenues, with expectations for a steady increase going forward [36] - The company remains cautious about providing formal guidance for fiscal 2021 due to ongoing uncertainties in the commercial market [34] Other Important Information - The company ended Q2 with $4.1 billion in cash, down from $4.9 billion, reflecting the acquisition of Cobham [44] - The net debt to LTM EBITDA ratio was 8.2x, believed to be at or near its peak [45] - Ongoing U.S. DoD IG audit is expected to be similar in scope to previous audits, with a final report anticipated in Q3 or Q4 of fiscal 2021 [47] Q&A Session Summary Question: Why is the company not considering dividends or share buybacks for the next several quarters? - Management indicated a conservative approach to cash management until there are clearer signs of recovery in the commercial end markets [51] Question: Is the OEM market expected to have troughed? - Management believes that bookings indicate a trough, but future revisions to production rates are not anticipated [53] Question: When will the booking strength translate into sales spikes? - Management noted that increased flight activity is necessary for a breakout quarter in sales, with expectations for gradual improvement [60] Question: What is the outlook for defense aftermarket revenue? - Management expressed optimism about the defense order book and noted strong recent bookings in the defense aftermarket [78] Question: How is the company managing cost pressures during the recovery? - Management stated that they will be disciplined in adding back costs and passing along inflationary pressures as needed [63] Question: What is the current state of the supply chain? - Management reported some price increases in raw materials but noted no significant supply disruptions at this time [123]