Q1 2021 Triumph Group Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to try a few conference call to discuss our first quarter fiscal year 2021 result, this call's being carried like on the Internet. There's also a slide presentation included with the audio portion of the webcast. Please ensure that you're.
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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, which may cause <unk> actual results performance, where she was to be materially different from me expected future results performance or achievements expressed or implied forward looking statements. Please note to the companies.
A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the press release, which can be found on their website at www Dot Triumph group Dot Com. In addition, please note. This call's property of Triumph group Inc. and may not be recorded transcribed or rebroadcast without the split written approval.
At this time I'd like to reduce Daniel J. Crawley, the company's President and Chief Executive Officer change up Mccabe Junior Senior Vice President and Chief Financial Officer.
I've tried to group Inc. and Williams seek hurt your executive Vice President Trump system in support go ahead Mr. Crowley.
Hey, Thank you, Kevin and welcome everyone to our Q1 earnings call.
Well those joining us this afternoon I hope that everyone is staying healthy and safe.
Well, we're seeing global economies begin to reopen and commercial aviation starting to recover, especially in Asia and Europe, our commitment to operating safely amid the ongoing pandemic remains our top priority.
Earlier today, we reported our first quarter results for fiscal year 2021.
No doubt the pandemic has been hugely impactful for our industry.
For our company in Q1, which we view as a trough quarter operationally and financially.
We are seeing stability and OEM raids and an MRO demand month over month.
Which provides more confidence going forward.
After a strong add to fiscal year 2020, Q1 results were down substantially as expected and reflected the heavy cash use associated with covert 19 impacts sunsetting programs.
And seasonality, partially offset by favorable trends in cargo and military demand.
Our first quarter results are summarized as takeaways on slide three.
We are taking the actions required to keep our people and companies safe.
Second our Q1 results while down from prior year are either in line with or above our expectations.
Third the diversity of our platforms and products reduces our exposure to any one program or customer and provide stability.
Fourth our restructuring put us years ahead on the curve on the pandemic and we continue to rightsize triumph to reflect commercial market realities.
And to maintain gross margins.
Fifth the recently announced structures divestitures provide evidence of our commitment to refocus on our core we remain on track to finish these asset sales in fiscal year 21.
And last we have more clarity on near term OEM and MRO demands as market stabilized and we see lift for military cargo demand, which together enabled us to provide directional guidance for fiscal year 21.
The Pandemics brought out the best in our workforce as we keep our factories open and support our customers in local communities.
And brought our vision on slide four to life as one team, we enable the safety and prosperity of the world.
Because of the essential status, all but two of our factories, where operational during our first quarter in all 36, if since returned to operational status.
Throughout the quarter, we remained focused on our three imperatives that have guided us through the recovery. Thus far these are first keeping our people say.
Keeping the company safe by conserving cash.
And collaborating with customers to solve their hardest challenges.
I'll start with the first priority keeping our people safe.
Communities cautiously coming out of quarantine.
We are expanding our health and safety measures.
Two of our factories have seen elevated case rates consistent with that of the local population.
Most of our factories of at less than four cases each.
To minimize the spread of coven 19 mandated that all tribe team members continue to where face coverings and public settings that here to physical distancing.
Avoid large gatherings in and out of the workplace.
We achieved record levels of safety and quality Q1.
70, or roughly half of our plans have gone over six months without an injury.
Very proud of the way our team has stepped up as we navigate this crisis their performance and perseverance to stay focused on our work has been inspiring.
Our core value of integrity as expressed as doing the right thing for our stakeholders and valuing safety diversity in respect.
To that end, we're committed advancing social justice within and beyond our company.
We benefit from the diversity of our workforce and board.
It's not only the right thing to do it's good for business.
As we help team members achieved their potential and retain and recruit the best talent.
Now more than ever our commitment to integrity teamwork and acting with a lot city are enabling triumph to meet these challenges.
We will continue to take all necessary steps to ensure the health and safety of our team while building a stronger leaner and more stable business size for the realities of the commercial market.
And position for growth on the military side.
I will touch now and each of the drivers for the first quarter on slide five.
Note that most of the headwinds in Q1 or nonrecurring.
Cobot 19 impacts in Q1 included OEM production pauses government mandated pledge shutdowns.
Volume reductions excess commercial inventory as we aligned material receipts with demand you cobot related mitigation and severance costs.
Q1, we used 205 million due to these combined causes.
We expect this cash use to decrease in our second quarter with breakeven or better cash performance in the second half of the year.
Our team acted immediately to reduce capacity cost adjust our supply chain signals and mitigate the operational health impacts of the pandemic.
Over 200 million a purchase orders for over 1000 part numbers were reschedule.
Reductions in force and attrition now total over 1300 employees and contractors year to date, while we furloughed over 4000 employees since March.
Q1 cash use on sunsetting programs was also heavy but will decline quarter over quarter.
Our structures team delivered the final Gtwenty wing from our Tulsa facility this quarter.
We have only eight shipsets of 747 fuselage panels remaining to deliver.
And we're on track to exit all remaining cash consuming structures programs this fiscal year.
Seasonality normally results in our first quarter revenue, having the lowest of our quarterly sales as well.
As we progress through Q2. These headwinds are abating month over month as OEM rates from up and as factory output increases and MRO demand starts to recover.
Ill now comment on our favorable tailwinds in Q1 and year to date.
Metairie sales increased in both systems to support and aerospace structures, helping to offset the commercial declines for example, our Clemens North Carolina Actuation business has seen military sales grow from 24% to 43% year over year.
Hey forecast to have 53% of sales for military customers this year, largely replacing loss commercial volume.
This is where tribes program diversity really helps.
Overall system support military content now comprises 50% of its backlog.
Well in MRO demand was down by approximately 50% in Q1, we saw repair receipts start to pick up in June month over month.
Led by aviation recovery in Asia.
We are tracking receipts across all 12 of our MRO repair centers on a weekly basis and while demand is still down from prior year. The trend is positive.
We began to realize the benefits of our aggressive cost reduction initiatives discussed on our last earnings call.
Enabling us a whole gross margins consistent with previous years.
We remain on track to achieve over 120 million savings in fiscal 21, much of which will benefit future years.
While working through the pandemic the steps we took this quarter build on our momentum for fiscal 2020 to drive improved profitability and cash flow and become a more predictable trial.
Looking ahead, we're identifying additional cost reduction opportunities to strengthen our operating margins, which we expect to improved quarter over quarter through the year.
Our divestitures in the structures business unit for also moving forward as expected.
As recently announced the first sale was our GE 650 wing Kitting and engineering services program to Gulfstream and.
And the second is the sale of our two composite structures factories to Arlington capital partners, who previously acquired our mental fabrications plants.
We expect these transactions to complete later this year, we plan to exit if wide 21 in our future state configuration, as a focus systems and support provider to military and commercial customers.
Concurrent with our Q1 results. We also announced denied our intention to refinance a portion of our balance sheet to increase our liquidity inability to work through the commercial market down cycle.
Together these actions will further de risk our balance sheet.
And enable improved profitability and cash generation in fiscal 22 and beyond.
On slide six I highlight triumphs extensive diversity of product offerings customers and end markets.
Boeing is maintaining rate on our single largest program the 767 and KC 46 product line.
Which is up 7% year over year.
Great related MRO demand increased 11% year to date.
One of the central goals of our multiyear restructuring has been to focus and differentiate triumph around internally design proprietary products, while continuing to partner with our customers in areas, where we can deliver the most value.
A few of triumphs price proprietary and sole sourced product offerings include.
Full authority digital engine control systems are feta X for use in the US armies, you wait 60, Blackhawk and aged 64 Apache fleet.
Landing gear actuation systems on Airbus Athree hundred 20.
Mechanical flight controls for multiple commercial helicopters.
Alluding to bell four to nine for one to four seven.
Brian has also designing products for next Gen military fleets.
And developing leading edge thermoplastic products and processes.
We are widening our customer base.
Today Triumph has over 100, OEM tier one tier two customers along with over 100 Airlines and 73rd party MRO customers, reducing the impact.
Potential declines in any one market segment.
For context in fiscal year 2020, only one program exceeded 10% of sales the Boeing 767 at 11%.
And only two customers exceeded 10% of sales bowling at 34% Gulfstream at 12.
Our Boeing sales included over 100 million to Boeing defense space and security.
Primarily from systems and support consistent with our strategy to expand military work.
As we set out to do in 2016 military platform contribution has increased as a percentage of sales and now represents over 30% of our total backlog as of June 2020.
On slide seven.
The two recent divestitures I mentioned build on earlier exits of machining fabrication and large structure sites.
Represent another step and exiting non core build to print structures operations to provide additional liquidity following close.
Combined with sunsetting programs and other planned transactions.
We expect to complete our strategic reshaping of structures this fiscal year.
Looking ahead, while we continue to execute on our operational priorities. We know the recovery of our commercial volumes will closely correlated to that of the airline industry.
And the sustained abatement of the virus across our country in the world.
Turning to slide eight I provide our take on the commercial market conditions and how they impact trial over the last 90 days global airline ticketing returned to service flight hour utilization did load factors of all improved.
While approximately 34% of the global fleet remains in storage increased traffic in Asia and Europe.
Has helped soften the severe MRO downturn in the us.
While the Oems predictable take three to four years to see recovery in the us to 2090 levels of commercial traffic OEM production rates and MRO.
Triumphs is dealing with the decline by pivoting to international markets and defense Rdio. The budgets continue to see strong government support.
Turning to slide nine prime secured new business across multiple military services and industrial markets spanning the US Army Air Force Navy Marines foreign military sales commercial nuclear rail and space.
Our diverse customer base as a source of strength and provides multiple avenues for success.
Trying to win rate on competitive programs for the quarter exceeded 80%.
Military backlog grew 8% year over year as measured at the end of Q1 as triumphs military content continues to grow.
And now represents more than 50% of our total pipeline of active opportunities.
As shown on slide 10, we congratulate Boeing on the recent Efifteen X order. We're trying has significant IP driven content per aircraft on the legacy platform.
In the quarter, we also expanded our scope on the T. seven a trainer by securing a flight test integration package building on the substantial structures and systems content on this important new aircraft.
Before I turn it over to Jim to recap our financial results I know, there's a lot of interest to what trying to seeing now and MRO demand.
Last year, we combined our systems and aftermarket businesses.
And saw early benefits in Q4.
And Bill Karcher, our executive Vice President for our systems and support business to share some insights in this area Bill.
Thank you Dan.
Im delighted to be speaking with all of you about the great things happening at triumph to systems and support.
We're very focused on growing our share of the military market as Dan has talked to in prior quarters.
There are two themes that are apparent in TSS is strong wins in the military segment.
Leveraging our long relationships with the military customer and our strength and engineering.
To that end I'm pleased to note that our military backlog grew 13% year over year and now accounts for 52% of systems and support total backlog.
Overall military segment results are up 26% to prior year.
In the quarter, we experienced substantial backlog growth on multiple platforms, including V 22, S 18, Apache and easy to D.
We secured the second multi year award for the each Judy electro mechanical interference reduction system or even years actuation and control package.
Complex system designed and built by China.
When coupled with our substantial existing content on the two D. This is certainly a premier platform for trial.
Direct sales to the U.S. government were up 29% in Q1 versus prior year benefiting from our T. 700 engine controls program as we upgrade fuel controls on the Black Hawk and Apache fleets.
We also secured a five year MRO contracts for showing up fuel controls to the UK ammo D heat exchangers on Northrop Grumman's next generation Jamere in a five year contract with Honeywell.
And one Abrams mechanical controls.
Turning to the commercial market, we secured wins across multiple segments, including commercial transport aircraft helicopter rail nuclear and space.
We want a five year contract for bell collectives and cockpit controls spanning multiple platforms.
We continue to grow content on the Airbus Athree hundred 21 XLR.
Having recently been awarded a service panel Assembly out of our German factory building on our recent up Block Award.
Our systems products at infrastructure applications as well.
We were awarded a small rail transport derailment detector package out of our business in France.
Finally, we continue to see good results from our commercial cargo segment with Q1 fiscal 21 sales to U.S. and Atlas up 16% to prior year Q1.
With those highlights I'll turn it over to Jim.
Thanks, Bill and good afternoon, everyone.
Our first quarter results were significantly impacted by the cobot 19 pandemic, but we acted with velocity to mitigate its impacts.
Our actions are positioning trying for the lower production rates and reduced aftermarket demand. We have now planned for this year.
Because we have a march fiscal year end, we completed our annual operating plan after the pandemic started.
Therefore, our plan includes actions and target cost levels, the reflect a new market conditions.
Consequently, our first quarter results met our Q1 plan, we're on track to achieve our full year plan.
We're already seeing signs of stabilization and production rates and improvement in aftermarket demand.
The demand profile, we're seeing is in the range, what we had planned and we do anticipate improvement and cash flow end margins as the year progresses.
I will discuss our consolidated and business unit performance on an adjusted basis.
So please see our press release and supplemental slides for the explanation of our adjustments.
On slide 11, you'll find our consolidated results for the quarter.
Excluding divestitures organic net sales decreased only 29% over the prior year quarter, including the planned reductions for sun, setting and transitioning programs and structures.
Revenue declined organically in both segments due to pandemic driven production rate decreases in commercial programs and aftermarket demand, partially offset by an increase in military revenue.
Despite the headwinds adjusted operating income was $15 million this quarter and our adjusted operating margin was 3%. So we are profitable on adjusted basis, although down from last year on the lower volume.
With respect to the segment results on slide 12, net sales in our systems and support segment decreased 24% compared to the prior year as headwinds for the pandemic were partially mitigated by military growth.
Adjusted operating margins for systems and support were down on decreased volume.
Margins reflect a 13% decrease in MRO and aftermarket sales in the quarter relative to the prior year.
Our restructuring actions impacting the segment's margins this quarter by approximately 110 basis points.
Disciplined supports recent wins and military and adjacent markets along with the cost reduction actions will help improve margins as we progressed to the rest of the year.
Summarized on slide 13 first quarter organic net sales for aerospace structure segment were down 34% due in part to plan sunsetting and transitioning programs as well as declines in commercial programs.
Aerospace structures operating margins were impacted by a $252 million noncash asset impairment charge, and a $7 million and restructuring costs and the quarter.
Excluding these impacts operating margin would've been about breakeven.
As reported both sales and margins were unfavorably impacted by government mandated and customer driven facility shutdowns early in the quarter, but our facilities are all now operational.
This group is continuing to aggressively reduced costs, including the recent exit of its Texas headquarters.
Aerospace structures also remains on track to complete production on the GE to 80, and some four seven programs this year.
These actions will benefit margins and cash flow in fiscal 21 and beyond.
Turning to slide 14 dependent caused a temporary increase in our working capital usage as we adjust our supply chain to the new lower demand.
Our $205 million of cash used in the first quarter was slightly better than planned and driven by decreases in accounts payable and accrued liabilities, including 10 million and liquidation of prior customer advances and 28 million of cash use on the Gtwenty program.
As well as temporary increases in inventory and $15 million and restructuring costs.
Capital expenditures were $8 million in the quarter.
We remain focused on aggressively managing our cash and liquidity.
Our first quarter cash uses not representative of a pro rata share of our annualized cash flows. This is due to the seasonal nature of our operations and cash flows the timing of our cash using program exits as well as the pandemic business disruption and temporary inventory increase as we adjusted the new lower production schedules.
These Q1 working capital headwinds are forecast to reverse beginning in the second half of the year.
On slide 15 is a summary of our net debt liquidity, our net debt at the ended the quarter was approximately $1.5 billion. Our combined cash availability was $354 million and we are complying with all of our financial covenants.
We forecast have sufficient liquidity through year end, even with no further liquidity enhancing actions.
Concurrent with our Q1 results were also announcing Tonight, our intention to raised $600 million are first lien notes in a private placement.
We intend to use the proceeds to repay and cancel our revolver and add cash for the balance sheet.
The refinancing is intended to improve our liquidity provide greater flexibility as we navigate the current commercial market down cycle.
Slide 16, as a summary of RF why 21 guidance.
Based on anticipated aircraft production rates and including the impacts of pending program completions roughly 21, we expect revenue to be approximately $1.8 billion to $1.9 billion.
We expect free cash used for the full year to be moderately higher than Q1 with less cash used in Q2, and the second half breakeven to modestly positive free cash flow.
Our backlog is resilient because the diversity of our markets customers and programs. We serve this is an important strength in today's operating environment. It makes our revenue more stable and predictable.
Our cost reduction actions have been substantial we continue to identify new opportunities to improve our competitiveness and add value for our customers, especially with intellectual property in our core businesses.
We forecast adequate liquidity covenant compliance through year end, yet continuously evaluate additional actions to enhance both.
The measures we've taken will help us manage through this downturn and we anticipate quarter over quarter improvements in our results this year.
Now I'll turn the call back to Dan Dan.
Thanks, Jim in summary tribes product and platform diversity supported by increased military sales and stable gross margins provided stability through an incredibly difficult Q1.
As we manage through to recovery, we remain focused on the safety of our employees enhancing liquidity and collaborating closely with our customers.
We continue to see the benefits of our cost reduction actions anticipate quarter over quarter growth in systems, and support and recovery and margins across the enterprise.
Announced structures asset sales demonstrate progress on our goal to exit non core operations and to enhance liquidity.
Four months into the pandemic the reduced market volatility has provided us with clarity to share fiscal 21 directional guidance.
So uncertainty remains we're committed to improving profitability and cash flow and becoming a more predictable business.
Fortunately, we entered this fiscal year with solid momentum from which to build.
And triumph will come through this crisis as a stronger company.
Kevin We're now happy to take any questions.
At this time the option of a company would like to open. The form 20 question that you may have we ask that you limit yourself to one question and one follow up to give everyone the opportunity to participate.
The storms on East coast, there's a chance with power outage. This power was lost please try dialing it again or sending any follow up questions. You may have by email if you're using a speakerphone. Please pick up the had said before pressing any numbers should you have a question. Please press star one on your push button phone should you wish to withdraw your question. Please press the balance sheet. Your questions will be taken an order received please standby.
Our first question.
Our first question comes from Myles Walton with GBS.
Hey, good afternoon, good evening actually.
I was wondering could you give us a sense as to.
Your comfort level with the production schedules that are being hannity by the Oems at this point have the.
Yeah. The plan bills that have been hand, it to you stabilized.
I know that they've gone through a number of iterations.
Finally on even some suppliers have said.
Where they're planning is and where they're assumptions are hasn't haven't get caught up to.
Where the manufacturers of just recently announced in the last week or so some changes so.
All the Baselined or all day announce new rates and incorporate into here look.
They have this database, we track 30 separate programs that gen generate most of our revenue and.
Under defense side as well as the commercial side Airbus and Boeing we're pleased that Boeing.
Our largest program the 76 seven.
At the current build rate of three a month and same with 747 were running that out we want to finish that program.
There have been reductions in 787 and 737, but we had not been building ahead. So many many companies were at risks because there were additive and we're able to dial back capacity consistent with that.
Very encouraged that Airbus is committed to support us it at least 30, a month on the Athree hundred 20, and with plans to go higher.
And then on defense side, we continue to track.
V 22, where we have a lot of content the easy to CH 53 F. 35, So one of the nice things about triumph is were spread over so many platforms, if one goes up or down.
We're not particularly concerned you asked about is stability and we're seeing the rate stamp out. They are through March and April may is very difficult, especially in the commercial side. The Oems were still in discussions with airlines in the and freighters and so it was difficult for them to share with us what there.
In the true needs were and we're beyond that now the rates are stabilizing and borrowing barring any new.
Headwinds.
These rates are where they used for planning and we've adopted conservative rates for the for the balance of the your forecast.
Okay and.
Just for a second question on that some of the Divestures that you've announced so far.
Could you size the revenue impact to the year, assuming they were to close as you anticipate and and also any pressure or Paul as it relates to the cash flow that you're talking about for the full year being I guess modestly at both the couple hundred million use in the first quarter.
Sure Michael This is Jim I'll take that.
The the estimated proceeds upon closing of the two transactions, we just announced its composites Angie 650 is in the range of $100 million in total.
Timing is expected before the end of the calendar year hopefully sooner.
And in terms of sizing the sales in the quarter were around $50 million for both those entities, but.
Our guidance, we'll consider whether there's a changes necessary when we actually close so the guidance, we gave a $1.8 billion to $1.9 billion for the year includes as businesses and then we'll reevaluate when we have a closing whether it materially changes that we have to update.
But these businesses.
Our with better owners now.
We don't expect will have a material impact on our or cash flow or.
The guidance, we gave on page 16.
Okay. Thanks I'll statistic.
Our next question comes from kind of under with Cowen.
Yes. Thank you very much so yes cash flow if we can only go over.
Slide 16.
All of your indications.
Cash tax interest.
The second half.
Steve will.
It looks like the only way you get home slightly positive cash.
Okay.
If you had a major tick in terms of accounts receivable.
Yes.
Is that is that the way you get there or is there something.
Then.
Okay.
Hi.
Sorry.
Yeah.
I assume you're right the working capital reversal is a temporary increase in working capital from the sudden change in demand and that will begin to reverse itself in the second half I know on page 16, we broke out the payables separate from they are in inventory. So it's hard to tell what the net effect is but I'll tell you that the net effect of those is the or use in the second half.
In the second quarter. It is less of a use than the first quarter and it turns positive in the second half. So it's really a normalization working capital.
As we stopped buying to catch up with reduced demand.
And last two on top of divestitures.
You mentioned.
Sales.
Let's see approximate cost fulfilled.
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Yes.
So I don't have an estimate for you I think.
Well look if we can disclose anymore that upon closing of those.
Don't believe it will have material impact on any guidance we provided.
The they weren't the best contributors to us, they're going to be better with the new owners.
Thank you. Our next question comes from Sheila Kahyaoglu with Jefferies.
Hi, Good evening, Dan and Jim Thank you for the time.
Jim I just wanted to follow up on ties question in terms of the.
Q1 free cash flow usage in the quarter. It was a lot of accounts payable.
Impacted it can you talk about what's driving that improvement.
Just want to clarify that a little bit more.
Yes, so, saying separating payables from inventory and receivables.
It can be misleading when you combine that too it was a combination of inventory that was not shipping because we didnt have demand for it and then we weren't buying new inventory to extent, we could avoid buying it.
And therefore payables were being paid off for the older payables. So thats what payables are going down is we're not incurring new ones and we have to pay the ones that come due and inventory is building up until we can start to ship it because of lower demand.
Over the course of the year Thats going to reverse itself and that's why we're going to be cash positive on the core working capital in the second half of the year.
Understood and then just on liquidity needs.
The proceeds are clearly helping in coming in even in a very tough market. So nicely done and then you just raise another 600 million.
Private placement, how should we think about.
Liquidity needs from here and ongoing financing.
We have sufficient liquidity meet our anticipated needs for at least the next 12 months without any transaction.
I think that the announced to the transaction will speak for itself.
But we're confident in our liquidity and everything we're doing is to make sure we maintain adequate liquidity to service the business with a little bit of a cushion in this environment.
Our diversity as Dan mentioned earlier is really strength right now and and the impact we're seeing a commercial side, we had the benefit of some military growth.
And the freighter markets, we serve as well so as I mentioned, we're seeing stabilization of the production rates.
We're seeing modest increases in MRO demand at least to our shops.
And we're looking forward to.
Improving our cash flow in the second half of the year.
Okay. Thank you thanks acute.
Our next question comes from David Strauss from Barclays.
Thanks, Good evening everyone.
David.
I wanted to ask about the.
Yes, the future stay of the interior business given the what's gone on the market. Since the first time you you broke that out separately I think you've been talking about that business being 300 million in revenue and mid to high teens adjusted EBITDA margins, what what what do you think that business looks like once its a.
On its own given what's going on with the market.
So interiors is the factory within triumph Thats been most affected by the Max rate cuts.
The workforce and Mexicali produces a million blankets.
Inducting per year for for Boeing and Spirit is so we've scaled back the workforce substantially consistent with that and thus the revenue drop in fiscal year 20, having said that it's a very well run flat some of our best lean practices.
It's a it's a variable head count workforce. So we can bring people back.
Boeing is allowing us to produce higher than their internal rate on the Max.
And we intend to bring that plant backup to its prior rates.
Consistent with Boeing's forecast, which as you know is to get back to 31 shipsets per month.
In 2022, so it's a good plant and their profitability will come back we are consolidating the second plant in Mexico is that could take us.
Into our Mexicali plant and some equipment will go to Valencia, California, and we've been transitioning work from our Spokane, Washington plant down the Mexico as well so all those things will be margin enhancing and we see the value that business going up overtime.
Okay, and as a follow up I think.
Last quarter, you talked about targeting.
Holding adjusted EBITDA margins for each of the businesses. Obviously, that's been happening in Q1, you are well below is is that still the goal to kind of get back to those.
Adjusted EBITDA levels pre pre cove, it and if so what kind of timeframe are we looking at to to get back those all those you. Thanks. Thanks.
The goal is to get to appear like either that margins.
And we're our board has made that clear goal for the management team. So we want to do more than just recovered to where we were pretty coated.
The cost reductions go along way to that exiting loss, making programs go a long way and then some.
Long term agreement price resets those three things together will help us get there Jim.
Yes, I think thats, the case and really treating every expense is variable, which we do internally.
We have pretty rigorous process to review our costs, especially at the height of the crisis. We are doing this and working with our operating teams to address every cost possible and treat everything is variable because we have to build adjust we have a pretty variable cost structure right now remember in more than half of our costs are actually material that are outsourced CIO or so.
Supply chains bearing some of the fixed costs and we share in that and that's where inventory is temporarily up as we adjust to supply chain.
But we're going to continue to make costs variable and and drive towards improved margins for all the reasons talked about.
Thanks very much.
Our next question comes from Roberts and Garden Credit Suisse.
Hi, good afternoon.
Jim I wanted to go back to your revenue guide of one eight to one nine and ask you what that looks like with just the remaining businesses and as a part of that.
Just in the slide where you talk about the wind down of Aerostructures that one pending acquisition, how do we think about the certainty of that and has added this year event I mean, it looks like it's supposed to be [noise].
Yes so.
I think you're talking about the divestiture.
Okay.
Yes, yes.
Exactly right on slide seven.
Okay.
Yes, so the two transactions, we just announced that composites and the GE 650, So I mentioned that sales in the quarter were about $50 million for them and depending on the timing of closing.
If we only had one quarter of them then that will be the impact on the year.
And we evaluate whether that was still within the range of our guidance at that point in time.
That was the continuing sales of those.
In terms of the anticipated transaction I believe you're referring to mean.
The rest of our non core business is.
Evaluating in their end processes and we're targeting.
Transactions and resolution of them by the end of this fiscal year.
But I don't think too that the change it any trip potential transaction there is foreseeable at this point and.
Have any kind of material impact on sales for the year because when it occurs we'll be later in the year.
Well, let me ask it this way forgetting when these things might happen what is the size of the revenue of the Remainco revenue compared to the one eight to one nine if you just the stuff you're keeping.
Is it one three is it one for and then Dan when we get back to 31 amount on the three seven and some healthier rates elsewhere, what does that recovery look like compared to the number I just ask Jim for.
Yes, I think the range that you're quoting is about right and we get back with the recovery of the commercial segment.
Ended at one eight to 2.0 range over our planning forecasts and.
Thats preliminary we'd like to see some follow through on the rates coming back and MRO demand, but it's in the is in those range of numbers.
And then just on the EBITDA you talked about are the EBIT DAP you mentioned earlier you talked about peers.
But there are there somewhat all over the places there are a good number there are a range of numbers do we think about somebody like a spirit when when things are normal.
So I guess, we too much on the structure side sell more up more like somebody else. So.
We use about 20 companies in our peer group and we take a composite of those but we're really more aspiring for.
The higher performers in the space.
Woodward as an example.
Okay.
They are probably a better comparable for us.
There is no company that does exactly what we do we do you know Eaton Parker Transdigm HEICO a are there all the new parts of what we do but north of 15%.
Okay excellent. Thank you both.
Yes.
Our next question comes from Seth Seifman with JP Morgan.
Okay, Thanks, very much and.
Good evening.
I wanted to ask about so in the systems and support business you talked about the.
The aftermarket being down.
13% and military spares, helping there I guess just to help us get a sense as the relative size of of those businesses on military and commercial we would you say that your commercial aftermarket was down.
50 ish 50, plus in line with most of what we heard from peer group this quarter.
Yes, I'll take that question and maybe they'll curvature can provide some color.
So.
So the goal the triumphant I got here to increase military sales from 20% to 30, and we achieved that in this quarter. If you look at our numbers. The 495 million of revenue, 32% was military and that's what the aggregate number across structure systems and OEM and aftermarket.
On the aftermarket side, we are a key provider of.
In the cells and thrust reversers for the C 17 overhaul.
We overhaul refueling boom was for the is the legacy refueling fleet, we do.
Spares for Apache each and so we've got a lot of content and it has helped to offset commercial I would say commercial dropped by approximately 50% we track the the commercial MRO by factory. So it was more in our interiors plant.
At Atlanta does enter interior reefer, Beverly dried up and less than our West Hartford, Connecticut plant, which has a even greater than 35% military contribution so but in aggregate the commercial and wrote was down substantially what's encouraging is as Asia and Europe start to fly again, we're watch.
And those receipts and even on the commercial side, it's coming back built.
Yes, Thanks Stan.
You're accurate our commercial aftermarket was was down 45 to 50 in our job tracker across our key channels military cargo third party overhaul.
Commercial Airlines in Asia is trending just how you.
Mentioned so.
We're cautiously optimistic thats going to rebound.
Okay great.
Thanks, and then.
Maybe just looking at the cash flows the rest of the year and.
Increased usage for for interest and taxes I guess in Q2, and then through the rest of the year.
Do you think of that is being mostly.
Mostly incremental interest expense what sort of the.
The cash tax situation to be pretty low both this year end.
And going forward is that.
Essential.
Yes, so that is the as you know we have substantial deferred tax assets, we can utilize or cash taxes will be low as they have been in prior years.
The reason for the interest being low in the first quarter is just timing of a semiannual interest payments on bonds that occur more in the second and fourth quarter than they do in the first and third and Thats a key driver for the timing difference there.
Great and you've also considered.
Offering that you announced in the and outlook here.
Well this outlook is qualitative so.
It would still fall within this range, but.
It wasn't specifically considered.
Certainly there is going to be higher interest from.
Okay, thats going to be.
An impact from its been undetermined jet.
Okay, great. Thanks, Thanks very much.
Our next question comes from Michael Ciarmoli would throw securities.
Hey, good evening guys. Thanks for taking the questions.
Hey, Jim just on that on the 600 million offering.
Jumped on late so I apologize, but did you guys give sort of a pro forma of what the cap structure is going to look like after that offering.
No we haven't yet.
I think that will come out in time, but I think all we have to say about.
Got it the announced that we put out so far.
But once we consummate that we'll do more information.
Okay.
And then just clarification on on the aftermarket. We just you just gave the detailed down 45% to 50% sounds like you know some of the Asian markets improve and good could you start to quarter with a backlog did did you have a little bit better visibility did April performed better I guess.
Now.
Trying to get a sense of how that that aftermarket activity looks right now in terms of either incoming repairs or order flow or what you're seeing in real time, yes, I would encourage you to look at the slide that.
Within the deck that related to the market that I spoke to on the top right graphic if the page number here.
Okay I get page eight yep, okay. Thank you yeah. So so it's pretty high these or number of repair receipts. So the inbox.
At our MRO side. So we were running about 4500 pre co bid.
In March it maintained pretty well and then we saw the big step down to about half that in April and May was the trough month, but to is picking up in June and July.
And it's enabled by both military and commercial so.
It's not yet back to where we wanted to be but the trends in the right direction.
Okay, but thats about chart is both commercial and military do you have the commercial portion of it.
I don't think we have that handy.
But.
Bill maybe you can speak to what you're seeing is one offsetting the other.
Yeah. Thanks, Dan, we we see the military and cargo certainly offsetting the commercial.
I'd like Dan mentioned Asia is is stepping back.
Quicker than North America.
And then third party overhaul.
Hey remains flat so kind of military cargo up third party overall.
Marshall flat and early trending out of Asia is positive.
In the unit cost for military repairs typically higher.
For the volume, maybe a little lower but the unit costs.
Got it had an indirect.
Just last one Jim on on the working capital and and I guess looking at I mean, maybe specifically inventory do you guys have a good read on on your inventory that's in a channel out there I mean, it seems like theres quite a lot of destocking that thats exacerbating some of the the OEM production decline.
Lines that is that something you monitor do you think thats a potential risk to cash conversion as you try and maybe unwind some of that inventory.
Yes.
No that's not something that we've seen have an impact on us. Although obviously, there's some in the channels, but I don't think we have a lot out there and we're not building that far ahead, so compared to some of our competitors I know our way build ahead, that's not the case.
So we are taking into account and our forecast is based on what the owing Oems willing to take from us and what are forecast is that the distributors will take as well.
Got it perfect. Thanks, guys.
Q.
Our next question comes from Ken Herbert with Canaccord.
Hi, good afternoon, Dan and Jim.
Just yeah I just wanted to see Dan as you look at systems and support and the adjusted 11.7% margins and the in the first quarter.
Can you just walk through some of the moving pieces for that as we think about the full year and specifically it sounds like aftermarket was obviously a were likely a headwind this quarter.
How do you see that sort of normalizing over the fiscal year, and what kind of maybe sequential improvement across the year should we see in margins in that business.
Yes the.
Reduction and MRO demand, which carries a higher margins, especially spares and.
Smaller degree repairs.
The primary driver for margin compression in Q1, so as an MRO receives and deliveries improve Q2, three and four it will see margins fall and we make money on Max too and there are actuated deliveries.
Some hydraulics that are done out of systems and when the rates stepped down from 20 or really 40 to 20, and then were paused that also affected margins, but it was primarily MRO and so we'll see over the course of the next three quarters pickups in those areas.
Airbus.
Ramping back up on narrow body will help us systems supports them as well.
Thanks, and then the MRO business are you seeing incremental pressure on labor rates from your airline customers are you still able to sort of pass through or gets the labor rates that you've gotten in the past.
No that hasn't been a factor for us.
The Big Challenge in Q1 was.
All the airlines just went on lockdown mode trying to figure out and cut their own capacity and so we didnt get the kind of order uptake we might have seen from like Delta.
But we did see good pickup from you PS Fedex and Atlas as I mentioned, 11% year to date on freighter volume.
So there hasn't been.
The airlines haven't been calling us.
I want to see price reductions, it's just been a volume.
Production. So we do expect there to be shakeout, and the MRO space with a smaller companies as.
As a result of decreased demand.
Because triumph can afford.
Rotable inventories that we can if we're getting more into usable.
Will you serviceable materials.
We plan to take share away from from some of the smaller MRO providers in that space. So.
Watch watch this space.
Okay and just finally on on that comment have you quantified how much of the they use maybe.
MRO business, where the aftermarket could be in terms of working capital.
In the in the back half of the year or is it is it maybe not material.
No there's no big there's no big swings go ahead, Jim it isn't it isn't material.
We have a ratable full that's in there and we continue to shift that to where the demand is up there really isn't a material requirement for working capital in the MRO business.
Okay, great. Thank you very much.
[music].
Since there are no further questions in queue. This concludes trial triumphs trends was first quarter fiscal year 2021 earnings call.
Call. She has a replay that is available starting today at 838 P.M. Eastern standard time until the 11, you can access the replay by dialing one 805 five athree six seven entering access code eight or nine eight or nine five again, you can access the replay by dialing one 805, five athree hundred six seven and entering access code eight for 94.
Five this concludes today's conference you may now disconnect have a wonderful day.