Transdigm Group Incorporated

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2019 Transdime Group Incorporated Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and 0. I will now hand the conference over to your speaker today, Liza Szabo, Investor Relations.

Thank you and welcome to TransFem's fiscal 2019 fourth quarter earnings conference call. Presenting this morning are TransFem's Executive Chairman, Nick Howey, President and Chief Executive Officer, Kevin Stein, and Chief Financial Officer, Mike Lisman. Please visit our website at transtime.com to obtain a supplemental slide deck and call reply information. Before we begin, we'd like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filing with the SEC. We'd also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA's defined adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliation. I'll now turn the call over to Nick.

Good morning, and thanks for calling in. Today, as usual, I'll start with some summary comments on our consistent business strategy, a few comments on the operating performance and outlook in capital allocation. To reiterate, we're unique in the industry due to both our consistency and our ability to create intrinsic shareholder value through all phases of the aerospace cycle. To summarize some of the reasons why we believe this, about 90% of our net sales are generated by proprietary products, and over three-quarters of our net sales come from products for which we believe we are the sole source provider. Most of our EBITDA comes from aftermarket revenues, which typically have significantly higher margins and provide relative stability in the downturns. Our longstanding goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we have to stay focused. focused on both the details of value creation as well as the careful allocation of our capital. We follow a consistent long-term strategy. Specifically, we own and operate proprietary aerospace businesses with significant aftermarket content. Second, we utilize a simple, well-proven, value-based operating methodology. Third, we have a decentralized organization structure and a unique compensation system that closely aligns our management team with the shareholders' interests. Fourth, we acquire businesses that fit our strategy, and we see a clear, simple path to PE-like returns. And lastly, our capital structure and our allocations are a key part of our value creation methodology. As you saw from our press release, we had a solid operating performance in fiscal year 2019, where the revenue is up 37%, and EBITDA, as defined, up about 29% on a reported basis. Organically, our revenue was up almost 11%, and EBITDA, as defined, up 14%. Including the dividends paid in August, our shareholders made about a 48% return in the last fiscal year, a pretty good year. Far and away, the largest portion of our business, our worldwide commercial aerospace markets, were strong in fiscal year 19. The smaller worldwide defense segment also did well. The TransLine legacy businesses performed well. The EstherLine acquired businesses continued to exceed our acquisition model with a Q4 EBITDA as defined margin of over 30%. In 2020, we will include EstherLine in the core businesses and no longer break it out separately. Fiscal year 2020 looks like another good year for Trans9. Revenue and EBITDA, as defined, are both estimated to be up nicely. All our market segments appear to be in pretty good shape. There are some potential clouds on the horizon in the commercial aerospace market, but we're watching this closely and we're prepared to react quickly if required. Kevin will discuss 2019 and 2020 in significant more detail. With respect to M&A and capital allocation, as previously announced, we executed agreements to sell both the SORIO business for about $920 million and the EIT group of businesses for about $190 million. We closed the EIT deal and received the cash in September. We still hope to close the SORIO divestiture by the end of our fiscal first quarter 2020. We may still sell some smaller businesses with less proprietary aerospace and aftermarket content, but if we do so, at least as of today, I don't think they will be significant in size. We also completed a roughly $2.6 billion financing recently. About $1.5 billion is for general corporate purposes, and the balance is used to refinance and extend the payments on some other debt. We wanted to take advantage of an accommodating credit market and attractive rates. With respect to capital allocation, We pay the $30 billion dividend in Q4 of 2019. We will review our capital allocation situation over the quarter and see where we stand towards the end of the calendar year. Absent any new capital market activity, and assuming our recent divestiture closes in a timely fashion, we'd expect to have almost $4 billion of cash at the end of Q1 2020. That's on or about 12-31-19. We also have a significant additional borrowing capacity under our credit line and our credit agreement. We have substantial liquidity and the financial flexibility to deal with any currently anticipated capital deployment, allocation, or other opportunities that may arise in the readily foreseeable future. We continue to actively evaluate and seek M&A opportunities. We have a decent pipeline pipeline of possibilities, as usual, mostly in the small and mid-sized. I cannot predict or comment on possible closings, but as I said before, we are working steadily at M&A and we're still open for business. Now let me hand it over to Kevin to review our 19 performance, 20 outlook, and some other items. Thanks, Nick.