Q3 2020 Earnings Call
Ladies and gentlemen, please standby conference call begin momentarily once again, ladies and gentlemen, please standby.
[music].
Ladies and gentlemen, thank you for standing by welcome to the Trust Group Conference call to discuss our third quarter fiscal year 2020 result.
Calls are being carried live on the Internet. There's also a slide presentation liquid with the audio portion of the workers.
This is Robert your profit blocker stable, if you're having trouble hearing with my presentation.
Currently going to listen only mode, there will be a.
<unk> introductory comments by management.
On behalf of the company are likely to falling statement.
Certain statements on this call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements involve known and unknown risks uncertainties and other factors may cause <unk> actual results performance where cheaper.
To be materially different from any expected future results.
It's worth treatments expressed or implied in the forward looking statements.
Please note of the company's reconciliation of non got furniture measures to comparable GAAP measures is included in the press release, which can be found on their website at Www Dot Trust group Dot com.
In addition, please note that this call's property.
Barnes group and it may not be recorded transcribed or rebroadcast without explicit written approval.
This time I'd like to introduce did not take Raleigh, the company's President and Chief Executive Officer, and James Just became junior Senior Vice President XI furnish lobster Triumph group. Please go ahead mr. probably.
Thank you Kevin you welcome everyone to our Q3 earnings call.
Earlier. This morning, we reported strong results for the third quarter fiscal year 2020 inline with our expectations.
Organic revenue was up year over year across all three business segments with strong sales momentum and integrated systems, which grew 9% over the prior year.
The growth in systems this quarter was.
Driven by volume increases on Airbus commercial programs and higher aftermarket demand for military rotorcraft.
Our product support business grew 2% year over year as a result of increased demand for engine accessories overhaul.
Aerospace structures delivered strong organic growth of 7% year over year.
Sure.
We continue to wind down legacy programs that have been headwinds in the past and expect margins in future quarters to benefit from this work.
Companywide on a consolidated basis organic revenue for the quarter was up about 8% while sales of MRO services and spares was up 15%.
That over prior year.
Free cash flow was positive in Q3 and year to date.
We remain on track to deliver positive free cash flow for fiscal year 20, as we guided.
Trying to achieve these results despite Boeing 737, Max rate reductions and our Nashville divestiture.
Quarterly cash flow improved year over year by 46 million as we exited lossmaking structures programs and improved cash flow from operations.
Liquidity remains healthy and stable it over 600 million.
Our year over year operating margins remain stable or were up and all three businesses in the quarter.
Bottom line, our comprehensive restructuring efforts have strengthened triumphs portfolio and stabilized our cash flows as reflected in our financial results year over year.
As we become a more focused in cost efficient company.
Given its visibility I want to comment on boeing's decision to temporarily suspend.
All assembly of the 737, Max and to provide transparency on the impact on triumph and our mitigation plans.
Triumph remains in close contact with our Boeing counterparts, and we've taken a proactive approach to managing this issue.
The impact was Max production pause is minimal to triumph for a few reasons.
First tribes diversified platform and product portfolio minimizing the impact of rate reductions on any one aircraft.
Just six of our 41 factories produce hardware for the Max and only two of these six derive more than 20% of the revenue from the Max.
Demand for other products at these plants.
Remained strong.
Second we reached agreement with Boeing to supply Max components at reduced production levels in the near term to protect continuity of supply and to preserve critical capabilities and suppliers.
We have the flexibility and staffing overtime and supply chain management to.
Production levels, and minimize operational and financial impacts.
As disclosed last year, the 737, Max historically represents a single digit percentage of our annual revenue.
With the Mitigations above the company now expects the impact of rate reductions and that's why 20.
To be.
3% of sales with similar impacts to operating income and cash.
From a cash perspective, we continue to manage our working capital closely consistent with reduced Max volumes in our fourth quarter.
And we'll offset these declines through deferrals and liquidation of customer advances.
Our relationship with Boeing remain strong and our companies also agreed to explore balance solutions to address a number of business considerations, including certain fiscal 2021 advanced liquidations from mutual benefit.
Our diversified backlog remains key to working through industry an individual.
Program cyclicality.
Turning to page five in the last 12 months accompany achieved a dramatic shift in the overall quality of the backlog.
To the divestiture of noncore build to print operations the company meaningfully improve the overall profitability of the remaining backlog.
Our backlog mix and profitability will further improve.
As we transition development programs into production.
And Sunset Lossmaking programs, such as the GE to 80 wing and the Boeing 747 fuselage later this calendar year.
Last strong growth in the military and commercial end.
At more than offset recent rate reductions in both total backlog and gross margins.
Together these actions are enabling triumph to become predictably profitable.
I wanted to touch on our core integrated systems and product support business units.
We continued to execute our.
Allergy to increased competitiveness.
Selectively pursue new work to strengthen our backlog, particularly in these segments given there are higher margin content.
Collaboration across these units on spares and MRO work resulted in a 20% increase an aftermarket sales quarter over quarter.
We are evolving from one off transactions two strategic partnerships with Oems and carriers and as a result, we're winning new business on platforms enjoying strong market growth.
Integrated systems is benefiting from the positive market response to Airbus is new Athree hundred 21 XLR.
Airbus announced in December of 2019, the just six months after launch they have logged more than 450 orders and commitments for the XLR from operators and less worse around the world.
Wins for the third quarter on page six include the design and build up a new landing gear up block system for the.
The Athree hundred 21 XLR.
Our solution employs an innovative design, which reduces part count increases reliability to satisfy airbus's requirement for landing gear up and locked confirmation.
This win builds on our legacy as the premier provider of critical up blocks across.
Terry and commercial applications with more than 50000 triumph blocks fielded today.
And product support we're moving forward with our previously announced joint venture with Air France KLM.
Which we expect to help fuel growth on newer aircraft just entering our MRO phase.
The global network created through this partnership is already yielding new opportunities with airlines, who recognize our value proposition.
Our combined team is working on several airline proposals with content from both our product support and integrated systems divisions.
And this has increased our year over year sales volume with air France KLM.
And by 70%.
Our Q3 wins and product support also included an onsite support contract with Turkish technique on their Pratt Whitney 4000 themselves.
Our focus on expansion in the aftermarket space is producing tangible positive results I'm confident this trend will.
Continue.
Integrated systems reported revenue growth in MRO and aftermarket sales of 49% over the prior quarter, reflecting the deal these investment in readiness and the benefits of collaboration across triumph.
Airline customers appreciate the quality and timely delivery of a triumph repaired.
Part.
And our choosing triumph to satisfy the MRO demand of their growing fleets.
Prime product support continues to expand its aftermarket presence with the launch of our Roadable trading business.
Which allows us to increase our shop throughput overhauling components directly for the carriers rather than through third.
Please.
Triumph now offers one stop single point access to customer support on a 24 seven basis.
Q3 was our first quarter, where the new triumph customer support center was up and running with inquiries up 130% since November.
Our recently announced.
[noise] Rotable warehouse located near the Miami International Airport will better serve the Latin America market.
And allow us to provide our customers with readily available rotable assets.
Asia remains a strong market for triumph.
In the quarter, our product support group received multiple awards from Asia Pacific.
Airlines furnace sales structures.
Including awards at Virgin, Australia, Tiger Air Australia Air India.
In China Eastern.
We have a growing structures business in Thailand, and our expanding our engine accessory capabilities in country.
To better serve our customers.
Across triumph.
Our teams are executing and winning new business to drive results at the same time, we continue to expand margins through higher efficiency and streamlined operations.
We've been on a multiyear journey to standardize our systems and processes reduce cost and better manage inventory, which has declined by over 40%.
Since fiscal year 18.
While affordability remains important our customers are raising the bar on product quality and reliability.
In response, we are implementing an enterprise quality system, and reducing variability to the adoption of six Sigma and statistical process control to build.
Quality into the manufacturing process and ultimately enhance product reliability.
This important companywide work is done in partnership with our customers suppliers and auditors.
And I'm proud to report that all triumph sites past their external certification audit held during the quarter.
The facility consolidation started in fiscal year 17 are paying off.
The Q3, we completed the integration of our thermal systems facility in Maryland.
Into our larger, Connecticut electronics and control facility.
We expect the cost savings and product synergies to enhance margins across both product lines.
The electronics and control side and Forest, Ohio.
Where we design manufacturing support specialized heat exchangers and thermal management systems is also helping to improve margins in our integrated systems business.
A few updates on our aerospace structures business, which continues to perform well.
Growth in our structures business year to date was enabled primarily by engineering services, which offset the loss revenue associated with sunsetting programs.
In Q3, we transferred the Boeing 767 work from our large structures plant and Hawthorne, California to the supply base.
And we remain on track to close the plant in late two.
20.
Similar wind down plans are underway at our Grand Prairie, Texas structures plant.
These two plants cover over 1.2 million square feet of lease space, which will be accident.
Recall, we transfer the two fuselage to Korea is a STK in Q2.
In Q3.
We completed our last deliveries on the program and now produce only the writers of elevators under more favorable terms.
The wrap up of the GE Twoeighty wing remains on track to complete by the second quarter fiscal year 21.
With only 27 shipsets remaining on contract.
As they contract.
Structures group continues to reinvent itself and when.
They develop innovative intellectual property and thermoplastics.
Having recently been granted multiple patents for induction welding of thermoplastic materials.
They are now qualified to all Boeing and more than 20 Airbus Thermoplastics best.
Locations.
Triumph in every are also announced a cooperative agreement to jointly develop and demonstrate the airworthiness of a thermoplastic primary structure in flight.
Which will use this technology a first for the industry.
Our interiors team increased their shipset content for composite.
Environmental control system ducting on multiple Boeing platforms, displacing an incumbent.
We remain the leading composite duck provider for Boeing commercial aircraft, providing more than 625000 linear feet annually.
Our Spokane Antares plant recently completed fabrication of its first.
Apart for the Airbus wing of Tomorrow program.
As part of the full scale large primary structure thermoplastic component.
That will support airbus's objectives of rate, enabling technology, while also providing cost in way benefits.
As part of our strategic review of our structures business.
Progress continued in Q3 with the divestiture of our Nashville structures business in late December.
We are using the temporary rate reductions on the Max to rightsize, our interiors business as well.
As production volumes in our second take Us Mexico plant decline.
There is less need for us to maintain long term.
Actually present at dislocation.
Therefore, we have plans to consolidate the remaining second take us manufacturing activities into our Mexicali facility.
Which already has composites capability and to our Valencia, California plant offsetting Max rate reductions.
We plan to close our SEC.
Take us facility later this year.
As our plans progress, we'll keep you apprised of our ongoing commitment to achieve financial predictability and operational performance on a path to value.
In summary, triumph maintain positive momentum in Q3 and remain on track to achieve positive free cash flow on an.
Annual basis for the first time in three years.
Financial performance continues to improve year over year.
I'm very pleased with the continued improvements in the quality of our backlog the actions, we've taken including the divestitures of our build to print businesses. The transitioning in sunsetting of our non core programs.
And the.
Greece and military programs have improved our backlog profitability.
This speaks to the predictability of trial, both today and in the future.
These program and operating company portfolio actions and operational improvement allow us to invest in fewer healthier businesses, where we can add the most value.
With that Jim will now take us through the financial results for the quarter Jim.
Thanks, Dan Good morning, everyone.
Third quarter results continue to demonstrate the improved predictability across our business with net sales EPS and cash results all meeting our expectations.
I will discuss our consolidated and business unit performance on an adjusted.
The basis. So please see our press release and supplemental slides for an exploration of our adjustments.
On slide seven you'll find our consolidated results for the quarter.
Organic net sales increased 8% over the prior year quarter, all three businesses generated organic growth.
Adjusted operating income was $64 million this.
Quarter, and our adjusted operating margin was 9% up about 440 basis points from last year's third quarter.
With respect to this segment results on slide eight.
23rd quarter organic net sales in our integrated system segment increased 9% compared to the prior year driven primarily by growth in Airbus.
We'll programs and increased aftermarket demand for military rotorcraft programs.
Margins for the integrated systems segment were significantly higher when compared with the prior year quarter.
The margin reflects a 49% increase in MRO and aftermarket sales in the quarter relative to the prior year.
Improved operational efficiencies and cost.
Reduction initiatives.
Restructuring actions impacted the segment's margins this quarter by approximately 140 basis points.
These restructuring costs will help to sustain expand margins in Q4.
Turning to slide nine third quarter organic net sales for our product support segment were up 2%.
Even in a seasonally low quarter due to accessory component repairs in the U.S. and despite deferred maintenance during the Max grounding.
The products the port organic operating margin was stable year over year reflects cost reduction benefits and improved product mix offset by timing of removals and onsite services of the active fleet due to the 737.
Grounding.
Aerospace structures results are summarized on slide 10.
Organic segment net sales were up 7% due to ramp up on legacy programs and engineering services.
Aerospace structures operating margin of 5% is up from a loss of 10% in the prior year reflects the benefits of the portfolio shaping ill.
Auction actions, we've taken as part of our transformation efforts.
The group is executing on the program transitions, having completed the two program transferred to ask Teekay on time and on budget.
And still planning to transition the GE to 80 out of Tulsa in mid calendar 2020.
Turning to slide 11.
Our $40 million cash generation and third quarter was inline with our expectations. This is a 46 million dollar improvement over the same period last year reflects the portfolio program changes cost reduction actions and working capital management across all of our businesses.
We remain focused on meeting our objectives generating positive free cash flow this year.
And are confident it will deliver on that commitment.
Ventures were $10 million in the quarter, we used approximately $11 million of cash in the quarter for working capital, which aerospace structures included $20 million for advanced liquidations and $10 million for sunsetting GE to 80 program.
On slide.
Well as a summary of our net debt liquidity.
Our net debt ended the quarter was approximately $1.4 billion.
Our cash availability, we're strong in about $635 million and we aren't compliance with all of our financial covenants.
In the quarter, we used our improved market capitalization and voluntarily contributed $50 million in.
Matures toward defined benefit pension plan.
This contribution eliminates required funding in fiscal 21.
Reduced required funding in fiscal 22.
We also extended the maturity of our accounts receivable securitization facility and lowered the capacity is $75 million from 125 million.
More aligned with our overall.
Borrowing base.
Also during the quarter, we apply the proceeds of $60 million from the Nashville facility divestiture.
To reduce our revolving credit facility.
Slide 13 is a summary of RF, why 20 guidance, which updates the guidance, we provided last quarter for impacts associated with our recent divesture of the national facility.
And the planned production rate changes on 737 Max.
Based on anticipated aircraft production rates and including the impacts of pending program transfers roughly 20, we continue to expect revenue $2.8 billion to $2.9 billion.
We narrowed our expectation for adjusted EPS to a range of $2.35.
Sense to $2 at 55 cents.
Our guidance assumes an effective tax rate of approximately 10% for the year, which represents a normalized tax rate of 21% adjusted for the anticipated reduction through a partial release of the valuation allowance in Q4.
Cash taxes net of refunds received or soon to be approximately $7 million.
For the year.
We anticipate the reduced cash receipts the fourth quarter related to the 737, Max to be offset by deferrals and liquidation of customer advances.
We continue to expect free cash flow for the full year to be between zero and $50 million.
We now expect capital expenditures to be in the range or $40 million to $50 million.
Slide 14 provide some additional detail, but our cash guidance.
Roughly 20, we expect cash flow from operations of 40 $200 million.
Which includes the liquidation of customer advances of $60 million in the year.
Through the first three quarters about quite 20, we delivered year over year improvements in revenue cash in earnings demonstrate our ability.
Liver on our commitments to generate cash and profitable core group.
As we reduce our leverage we will continue to invest in our core business to accelerate their profitable growth and drive meaningful increases and shareholder value.
Now I'll turn the call back to Dan Dan.
Hey, Thanks, Jim our Q3 results demonstrate our restructuring and.
Transformation efforts that position trial for success.
Quality of the remaining backlog and new wins are indicators of our future performance.
I remain confident triumphs ability to compete when and deliver value creation over the long term.
We're now happy to take any questions.
At this time.
You officers the company would like to open the floor Benny question, what should we have we ask that you limit yourself to one question and one follow up to give everyone. The opportunity you participate.
You are using a speakerphone please pick up the Hansen before pressing any numbers should you have a question. Please press star one on you push button phone should you wish it was Troy. Your question. Please press the pound keep your questions will be taken or do they receive please.
And by where first question.
My first question comes from Seth Seifman with JP Morgan.
Hey, good morning, everyone. This is actually ban on process.
Good morning, good morning, but.
Yes, so I guess I just wanted to ask about the 737 Max I.
Can you speak to or give some color on the production rate that you are kind of considering for the.
Q4.
Slide 20, and how you kind of see that progressing through a slide 21.
Yes, the rates of production.
Were 52, and then last year there.
Stepped down to 42 a month.
The rights that we're looking at running it during an interim period or about half of that I think that's comparable to other suppliers that Boeing.
As Boeing price to synchronize the supply chain with or Assembly line of course, each factory has a different work in process and finish.
Hi, good inventory level. So there's some minor differences, but that rate is more than sufficient to sustain the capabilities, both within triumphant and our supply chain and then as we go through the calendar year, we'll step that rate up I'll, let Boeing speak to the the profile of the step up.
Okay. Thanks, and then just one on the yes, the cash from ops.
Is down 30 million in the guide after adjusting for the Boeing advances that you are not going to repay but net income in the guide down about 10 million can you just.
Kind of square that up for us and where the extra.
Cash flow is.
It is down from.
Yes, sure bends, Jim So capex is little bit lower and with the Divesture of Nashville, and our traffic has been running less were 27 million roughly year to date. So were 40 50 for the year, that's about 10 million down we were.
Previously.
And Thats really the probably the biggest offset to the change in operations.
Okay. Thanks.
Our next question comes from Myles Walton with you've yes.
Thanks, Good morning, maybe maybe just following on that for second.
So that the Capex I think the question was on op cash Jim If you had it and I think that the press release talks about 3% hit to from the 77 Max versus previously too and then also can you clarify and the tax rate that 10% is that flowing through your adjusted EPS as well or just your GAAP, yes.
Yes, thanks miles. So it was it was addressing what offset that I think that was Ben's question, Yes of course cash from operations, a little lower and the totals the same because we're able to have less.
Capex, so free cash flow stay the same range.
And the results for our many for the Capex for the change in the casual from operations, but Max as part of that.
In terms of the tax rate yeah that is in the adjusted.
EPS guidance, the 10% rate and that reflects the reversal evaluation allowance we expect in Q4.
And so just the implied margins for Fourq you in that that knew.
That new EPS guidance can you talk about the moving parts in Fourq you.
Yes, so I don't really have a lot of detail about.
The the parts in Q4, right now I think.
With the change in the Max schedule.
Just give me some impacts but they have offsets as Dan talked about so I think we have others, our full year guidance and there's parts would be managed so we can achieve that.
Maybe Dan can you talk about on the strategic side the portfolio shaping if your counterparties are showing any type of uncertainty as it relates to the Max uncertainty itself as well as 77 production rates and just general.
Yes, there's the general climate, which seems a little bit less predictable.
Within that count outlook and.
Valuing strategic purchases by I kind of partners.
Yes, I think the the the uncertainty is lifting.
Yes, 123 months ago wouldn't the pause was announced and there was uncertainty around interim production agreements your comment really apply now with with all this.
Flight suppliers.
Reaching agreements with Boeing.
And.
In line aside towards both returned to service.
We returned to production.
The causes that Boeing has GE has extends to trial and I think people who look at M&A as.
We think about.
Divestitures out of our structures business take the longer view and some of these properties only come up for sale every 10 years or so so.
Feel more encouraged that through the course of the year.
Deal volume will continue to it really hasn't slowed.
And we've made good progress with our investment banks on the planning for various outcomes that I've talked about on the last earnings call and we look forward to making those announcements as they are completed.
Okay and that by the end of the fiscal years, that's still the right timeline or is it moved at all.
So you have to.
And what you mean by the end of the fiscal year, we are.
Every quarter look for triumph to continue to make progress against our plan. We've done 13 divestitures. So weve I think we've built up a track record of being able to execute these Nashville was the big one in the quarter for Q3 and.
Through the course of this year look for additional announcements.
Okay. Thanks.
Our next question comes from Greg Konrad with Jefferies.
Good morning.
Right.
Not to go back to the Max but I mean, you mentioned that Ed.
Acted the cash from ops, but the revenue outlook stayed the same was there an offset on the topline or a business doing better than expectations.
And one of the strong suits in Q3 was our progress on our MRO. The nice thing about maintenance repair overall and spares is short cycle I highlighted this is.
Focus area in our last earnings call and one of the changes that we made in the quarters to put all of the the 14 demos that exist across trial under our product support businesses direction and they're used to moving fast their business with very little backlog a quick turnaround times.
And.
Historically these deposed that were embedded in our OEM integrated systems. It was really a secondary consideration to the deliveries that go up to the new deliveries out of this factory. So by just shining a light on both operational performance and channels to market and the tea.
Yes, I would oppose we saw some good pickups in the quarter and we continue we'll continue to do that through Q4, and if why 21.
And thats helped to offset the delays or the rate cuts on Max.
And then just as a follow up you size the impact from the Max that 3% for.
Fiscal year, but you also called out some impact in Asia from onsite services does that 3% encompass both of those items and then just as a follow up has there been offset or benefit from the Max grounding from and maybe some aftermarket parts on older aircraft.
So the 3% doesn't include any I'll call it softness in our third party maintenance as carriers defer their repairs. So I view that is more of a timing issue, Greg where they've operated the legacy fleet longer waiting for the Max to return to service and so we expect.
Back to tailwind in at 421 is aircraft are adopted for overhaul.
And then just last question I mean that as we true up our models for the next couple of years I mean, when should we assume that advance repayments start.
So this year Weve liquidated 60 million.
In dollars and that's what we anticipate for the full year of advances as we mentioned, we're continuing discussions with Boeing has helped us out offset some of the impact from Max.
We look forward to given guidance before next call.
On one point 20 ones going look like.
Thank you.
Thanks.
Our next question comes from David Strauss with Barclays.
Hi, guys, especially topples on for David.
Good morning.
Morning.
So I wanted to talk about I asked margins on so I.
I mean, we've talked about the Max but I think the Max is probably one of your most profitable.
But then I asked so I guess, what what is what could margins look like next year in that segment Aframaxes down another 40 or 50% on I guess is it safe to assume that you're you're 2021.
EBITDA margin targets assume tire seven three step in and 787 right.
Let me respond and then first and Jim joined end, but.
We're fortunate because of our broad portfolio programs to have.
Lots of profitable programs Tee us.
Electronic engine controls hydraulics heat exchangers.
Fuel pump metering systems and.
So yes, the Max is a profitable program and yes, it's impacted us in the short term because the lower volume, but we also have very strong performance out of our engine.
Controls business and our thermal systems business to help offset it and those have not been affected by Max I mentioned on my script.
Unitary rotorcraft and whether it's the generic the Apache.
These platforms continue to make orders in the quarter that carry good margins. So that's really the strength of triumph is that we're not we don't have the dependency on any one platform.
Yeah, I don't think I'd mentioned is that.
We did assume.
Hi rates, but it's very manageable because we have such a high materials cost over two thirds of our costs for the Max program is purchase materials. So work with our supply chain to manage that and that will help mitigate impacts.
Okay. That's helpful and then I guess continuing with the 77 on I guess.
Will you start to see that impact later in calendar 2021, and then could you just kind of size how much how much impact 77 could be from I kind of revenue and cash perspective as well.
Yes, the build rate for triumph on the 77 it'll declined slightly from what was about 13 a.
And in this fiscal year down to about 12, and 22 and potentially down the maybe 11 love it and half from 23, so to gradual reduction, it's not a significant or material impact to our crude throughput.
We're helping Boeing make those adjustments.
The factories that produced 77 content, it's a small percentage of their their throughput. So it doesn't really have a big effect on us.
As noted in the quarter, we won this.
Athree 21, XLR contract, we hope we hope is the first of money and so we pursue.
Work with Airbus and other customers to offset any.
Any rate reductions coming out of bone.
Okay, and then and then just last one from me.
So you're talking with selling about you know renegotiate renegotiating advance payments are you kind of.
Is there anything provider that you're also.
Renegotiating or on just kind of if you could touch on that and if on the advance payments are those solely tied to the 737 program or is there kind of color him there.
So we have a lot of touch points with Boeing.
Boeing Defense Boeing commercial Boeing Global services.
And it really that's one of.
The benefits of the positive relationships as we work to support each other as they have adjustments and rate where they have new proposals.
Example, on the defense side, we're going through development now in the 270 trainer, we're supporting the V 22 contract on the defense side.
And.
So when we talk about negotiations with Boeing we do it it's a very large.
Set of programs that we work through its not just the Max and the advances that were for servicing repaying or not related to seven to seven they go back to primarily the 747.
And we're excited about.
And for seven.
Program, we're delivering to our commitments that were wrapping up our contract obligations in calendar year 2020 will deliver our last 747 sub fuselage panels.
And wind down the two plants Marshall Street, and Grand Prairie, Texas, and Hawthorne in California.
That combined with the exit of the GE to 80 program in Tulsa, and we and the sale of Nashville, and four of our largest structured plants will wind down so.
Good good dialogue with Boeing across a broad set of programs and I think we've demonstrated the ability to reach win win agreements with them.
Alright, great. Thanks, guys. Thank you.
Our next question comes from Peter I Remember Baird.
Hey, good morning, Dan Jim.
Dan Dan you mentioned, the a the Mexico consolidation efforts tied to 737, Max lower volume, we're taking advantage of that could you just give us a highlight.
What is left on the facility consolidation efforts from the original fiscal 17 plan.
But the you've done a lot already I just wanted to know.
Yes, not much.
Actually we were in the process of moving the 767 line from Texas to Florida a.
Little bit little bit of it goes to a different plant in Texas.
But that'll happen this year.
And we just finished the move of the Marilyn heat transfer business into Connecticut. So those are all the plan transitions. We have some smaller ones you mentioned that can take us we're being opportunistic.
Sure and also dealing with reality.
But the the work is done Zacatecas is mixed there's there's composite work that readily fits and Mexicali Mexicali is one of the plants affected by Max rig counts. So it will help backfill the lost volume and then they also do some roughing machining and that.
We'll go to our Valencia actuator plant also affected by Mac. So we've got to be agile and respond to market conditions quickly.
Is the right thing to do but having done those there's really no. Other planned consolidation some plants I think we've done about a dozen.
And it's been difficult its cost us a lot of cash it's.
And a drag on cash flow you have to build ahead inventory.
And then burn it off you have some loss of learning.
In fact in Q3 prior quarters, one of the consolidations that we did in Connecticut was a drag on cash and earnings and we're now coming out of the other side of that consolidation.
We see a path to positive cash flow and profitability at that plant. So it's been painful I don't want to do a whole lot more of those.
But what it's done for US this has gotten the work in the right places.
And it's got us out of leased facilities.
For example, in Grand Prairie, Texas, and the Hawthorne those are both.
Leased facilities.
So we can reduce our footprint and reduce our fixed cost and we expect us to benefit 21 and and on.
Appreciate the color I'll leave it at one thanks, okay. Thanks.
Our next question comes from kind of owner with Cowen and company.
Hi, Good morning. This is Jeff Molinari Entre kind today, thanks for taking my question.
So it looks like the cemetery additional 737 program is listen number one on on integrated systems for your top programs from the deck and that's kind of sit on the structure. So just kind of curious how you split.
The.
Access between the two segments roughly.
And then I had fallen.
Sure we've thought about changing that chart that has the programs and descending order because normally it's a little bit of a non linear curve in the first one's a really big turns out there pretty uniformly distributed revenue.
Across the.
Programs, we do.
Good bit on 77, but a lot on the Athree hundred Twentys 77, New V 22, So we'll work on a way to provide investors analysts with more transparency.
On content, but.
On the 737 and structures, it's mainly interiors is mainly blankets that I mentioned.
And in Mexicali and that factories about 2500 people.
They have.
Around 20% that work on the Max.
We're going to continue to produce the Max at that plant Theres a lot of blankets that are of a comment configuration no matter how the final aircraft is configured.
So we can use overtime.
To maintain our workforce.
And our throughput so it's not really a structures role on the 737, it's more of an interiors role.
Okay. Okay. So.
But just generally between the two segments, but that would that imply that.
More of.
Ill.
The vast majority that integrated systems.
For me no no no actually I was the Max content is it's pretty evenly distributed between systems and structures are interiors.
Okay.
Okay. That's helpful.
And.
And just switching gears a little bit.
Thats the payment repayment you talked about them a bunch <unk> how much of the actual dollar amount remaining is that part of different renegotiations or is just solely negotiating tiny.
I think Theres Theres no.
Limitation till we can negotiate.
The I think there's about 240 million.
Left of of advances and.
We'll be discussing 21 ones is what we highlighted in our understatement.
Okay. That's helpful.
And one more if I may.
What's the latest on the GE to 80 program I think you said it was.
10 million burn in this Q, how much expecting it's pretty full year, the burn and what will the Burndy next year.
Thanks.
Yes, so it's 10 million this past quarter, we're expecting a 60 million next next year and that's why 21.
Yes, it'll be good.
Good to get this program out of our portfolio came over with the spirit transfer of 650. It was always a loss, making program at that time and and hasn't gotten materially better. So the decision. We made last year to exit move that work to a low cost country was the right one has been.
We've been executing on the program, it's certainly paced by the supply chain, but we have a line of sight to get out of wholesome finished the work there this summer.
And to put that chapter behind US now let me let me clarify the 60 million is for this year for F. Why 20 tenant which quarter total next year its was 40 million.
That's our estimate.
Okay. Thank you. Thank you.
Our next question comes from Ken Herbert with Canaccord.
Hi, good morning.
Good morning.
Hey, Dan I just wondered.
Integrated systems, if you can just remind us again what.
Percentage of that segment sales, our aftermarket and if you could provide a little more detail on the up 49% I know you called out military rotorcraft, but what was the growth maybe other commercial side and just any more detail around that and if there was anything sort of one time in the quarter.
Sure so today.
Aftermarket and MRO is about 20% of their total revenue. If we have 1.1 billion revenue so little bit over 200.
The there was no single one timers that drove the increase when weve benchmark our peers on aftermarket most of them are in the 40.
The percent of their revenue with the talking systems companies that is derived from aftermarket. So we think we've got a big upside in our last earnings call I talked about what that could be.
Could could we stretch, 20%, 30%, 35% and so were the early phases, but the early data is encouraging.
The fact that we're able to pick up orders on.
Apache and Chinook.
This is all a reflection of the Deo D.
Putting money into readiness and when when the Pentagon talks about investment it's not only in new platforms.
But and new starts but also.
So.
Sustainment budgets that support the fleet and Thats flowing to trial as they work on getting the readiness of all the platform. So it was a multiple.
Contracts and we.
We think there is upside beyond the 20% today and to clarify if you didn't get the last quarter, it's actually been.
The 20% we've been running year to date was 26% in last quarter, and it's a 49% increase year over year and MRO and aftermarket sales.
Okay. That's very helpful and just one more question on this.
That sort of 26% or 20%.
For the full year I guess.
How much of that is under long term contracts versus how much of that is just sort of book and ship or or.
The actual.
I think love to take that for action that we get to the right numbers, but no I give you. An example of an award in the period we had.
Lay the defense Logistics Agency gave US an award for of the T. 700 engine controls of this is a mature program, but they as the refresh these any convention controls over 2000 out there needed to upgrade the black Hawk and the Apache fleet and so we don't talk as much about.
At this part of triumph.
But it's really where the core value. The company is in our electronics and controlled business in West Hartford, which is so strong IP critical components.
That enable their mission critical.
And there is large installed fleets so.
So in triumph and we've been is a leadership team we've been talking about how do we communicate to our investors. All this good content that we have and not just summarize it sort of a percentage level as we have so we'll share more of that in some of the one on ones and look for the earnings calls in the future to give more.
Tail on them MRO progress.
Great. Thanks, Dan.
Your next question comes from Michael Ciarmoli with Suntrust.
Well.
Hey, good morning, guys. Thanks for taking the questions.
Maybe you can't just to stay on the MRO and spares I. I think I might have missed.
But I think you called out maybe 15% spares and MRF growth and then maybe later it was 20% what were across the company I guess, what were what was MRO and spares up year over year.
So.
The margin and integrated systems reflects a 49% increase in our MRO.
For Mark sales in the quarter versus last year's quarter that was my observation about the MRO sales, we still have the TPS overall segment, which is MRO and spares more and more of the spares.
And that growth will grow through a little lower for the full segment. It was only 2% I think that reflects the impact of the Max there's really not lot of discretionary.
Good work being done interiors or or maintenance, it's kind of as necessary. It was really T. I ask that saw the uptick in Q3 in aftermarket MRO and aftermarket.
Okay.
And then just back to the Max I mean, it 3% revenue impact this year I mean.
Given the timing your fiscal.
Full year, it seems like the units even with holding a rate here.
With Boeing at a reduced rate you could see rates down 50% I mean should we expect a more significant headwind from the Max next year and I guess tying in like you said that gradual stepped down in the 77 should we.
Just how should we calibrate our expectations for organic growth next year.
So we've been as reported in this quarter, we've been encouraged by the organic growth above 8% and that's in spite of the rate cuts that Boeing made a year ago from 52 to 42.
There is some lost volumes.
Associated with Maxim have wide 21, but because it's again one of many programs is not a huge contributor.
We don't expect it have a material effect on our acquired 21 revenue forecast.
Remember triumph is less about.
Revenue topline growth right now it's about.
After the ability expansion and improvement in free cash flows. So we'll manage during this interim rate period to the reduced volume and will use our organic growth on other programs to help offset that offset it may take away a little bit of our upside growth next year, but.
It's not going to be a huge.
Impact.
Okay, and then just one last one on the free cash flow just to make sure I'm I'm straight on this I guess 10 million cut operating cash flow offsetting with capex, but it looks like the advanced liquidations were also cut by 20 million. So I guess, it's in the realm of zero to 50 million, but any other.
Moving pieces there I mean, it seems like that would have given a little bit of a tailwind to free cash flow offsetting the out the headwind from operations.
You know as I mentioned on the Max we have a high material content. So we have to manage that inventory down. So that's kind of the offset there is the inventory versus the as Vince.
Okay, working well work.
You've got to really hard to push out.
Hardware in Q4, we have a past due backlog balance that we want to.
Drive out and that's that's where the cash from operations was going to come so all the factories at triumph working independent of Max to ship hardware in Q4.
Got it alright, thanks, guys I'll jump back in Q.
Our next question comes from Ronald Epstein with Bank of America.
Hi, guys. This is Caitlin entourage on can you provide more color on the puts and takes in the margin assumption is reflected in your updated slide 20 outlook.
And how do these margin assumption changes jives with the operating cash impact there. Thank you.
So we really aren't giving quarterly margin guidance I think margins fluctuate more in structures, because as long run nature of the programs, but they have been improving over time, so you're going to see some volatility there but.
Great systems and price support are solid.
And of course, the three seven Max volume changes will have a modest impact, but thats very manageable because of our high material content because the actions, we're taking internally to redirect the workforce.
And use the opportunities from consolidation or rightsizing of facilities.
Alright. Thank you that's helpful.
Since there are no further questions. At this time. This includes terms group third quarter fiscal year 2020 earnings conference call.
It'll be a replay of the conference available later on today at 11 30, M. Eastern standard time through the 14th of February 11, 15 90 Cecenter.
You can access the replay by dialing one 805, each five athree six seven entering passcode one for eight seven 806 again, you can access the replay by dialing one 805, a 5.367 and entering passcode one for 878 Joseph.
Thank you offer participating and I'll have a nice day all parties may now disconnect.