Q4 2023 Triumph Group Inc Earnings Call

Speaker 1: With strong margins and positive cash flow, positioning the company for success in fiscal year 2024 and beyond as demand accelerates.

Speaker 2: We met or exceeded our full year financial targets, delivered organic sales growth, the Turley expanded profitability, and in our fourth quarter generated 52 million in positive free cash flow.

Speaker 3: as we seek to enhance shareholder value in a rapidly improving demand environment.

Speaker 4: Deleveraging remains the top priority as we continue to optimize our capitol structure over time.

Speaker 5: We recently extended our debt materities, providing additional liquidity and flexibility as triumph returns to consistent cash flow generation in fiscal 24 and beyond. We're inviting a 100% repliated seed of bid to improve financial development, which also intends est wherever we are holding up to. Do we have to agree with experts? Yes, that is.

Speaker 6: Our four point strategy remains on track.

Speaker 7: First, reposition the company as the systems and aftermarket company, which we've done.

Speaker 8: 2. Improve operations and grow our proprietary and aftermarket sales and margins.

Speaker 9: 3. Return to positive free cash flow to help deliver the company. And 4. Generate the shareholder returns our investors expect.

Speaker 10: Crime for the stronger company today is a result of our actions.

Speaker 11: allowing us to compete successfully in the market against larger and more valuable peers.

Speaker 12: Turning to slide three, I'll summarize the highlights for the quarter.

Speaker 13: First, we generated organic sales growth of 21% over the prior year quarter.

Speaker 14: with increased sales reported across all our end markets.

Speaker 15: Year-over-year sales growth was 14%, driven by improving commercial OEM and MRO demand.

Speaker 16: Note that aftermarket accounted for 41% of our Q4 sales, while military programs account for 37.

Speaker 17: both up from prior years.

Speaker 18: Key drivers for the increased Q4 revenue included higher volume on the Boeing 737 and 787,

Speaker 19: OEM in spares for military road craft.

Speaker 20: GE LEAP Gearbox Shipments and the Cell Overhauls.

Speaker 21: All tail winds on growth platforms, which we expect to continue in fiscal 24.

Speaker 22: Profitability for the quarter materially exceeded prior year levels.

Speaker 23: On a fiscal year basis, we achieved our highest margin for sentences since 2014 as a result of our strong execution and improved business mix.

Speaker 24: Key profitability drivers for the year included higher spare sales.

Speaker 25: Cut in the previously negotiated price increases.

Speaker 26: Development program transition to production, higher sales at our MRO sites, and lower SGNA and overhead costs.

Speaker 27: Our cost reduction results enhance our operating leverage. In other words, we won't have to add back support costs as volumes increase.

Speaker 28: With encouraging here, we saw higher EBITAP margins across all our primary product lines you over here from actuators to engine controls, gearboxes to product support.

Speaker 29: We grew our backlog by 11% as Triumph continues to benefit from our broad representation across platforms, customers, and end markets.

Speaker 30: and as our differentiated solutions gain traction with our customers who are helping to fund our R&D efforts.

Speaker 31: Our backlog improvements in size, diversity, and profitability are rooted in our investments in new products and technology for folio changes and pricing initiatives.

Speaker 32: In addition to the long-term agreements, which we secured in recent years across all our businesses, backlog renewal is key to try and sustain long-term growth.

and for products supporting the war in Ukraine, enabled us to exceed our goal of generating 25% of our sales from new products and markets. Turning to cash flow, we generated strong positive free cash flow to end the year, benefiting from over $120 million in unlevered free cash flow in Q4 as we accelerated product shipments, cash collections, and reductions in working capital. We are on track to generate positive free cash flow on a full year basis for fiscal 2024 and beyond.

while expanding our CAPEX investments and funding working capital in support of the commercial ramp.

Private May-Great Friars this year operationally across the enterprise, including achieving world-class safety levels with 12 or half of our sites recording zero injuries in the last year. Reducing red programs by over 75% which reduces financial risk, establishing over 100 high performance teams to streamline our execution. Reducing quality defects by 20% with 11 sites achieving world-class levels of less than 1% cost of poor quality.

and improving supplier on-time delivery performance from the mid-70s percentages to the low 90s to free up captive inventory. this street will tax deflection point and new configurations. Stein and Lady Therapist find this product from Prefectural

We remain encouraged that both OEF and MRO markets continue to recover as commercial revenue levels are on track to exceed 2019 levels this calendar year.

Triumph is benefiting from a 52% increase in global revenue passenger kilometers to 88% of pre-pendemic levels.

The primary driver for both new aircraft orders, production rate increases and MRO spend.

Similar growth in the international travel is benefiting our wide-body MRO sales.

Robust Commercial Demand helped increase Triumph's fiscal year 2023 bookings 31%.

including 171 million in new contracts in March alone are highest of the year.

Six of our 24 factories will benefit from Ryanair's recent order for 300 max 10s in those from the United Airlines.

Turning to slide four, new winds totaled 205 million for the quarter and 743 for the year. Important military winds for the quarter included content on the CH-53 helicopter.

including the blade fold and blade damping system and engine oil coolers.

and an f-35 drag chute actuator.

We also received a large order for the M777 Howitzer magazine components.

Increasing volume is our biggest enabler for top and bottom line growth. Bowling air bus can see the forecast higher OEM production rates and recall the triumph typically steps up our rates eight to ten months ahead of the OEMs due to product lead times.

As shown in slide six, we anticipate the Boeing 737 MAX rate to step from the current rate 31 to rate 38 this summer.

As shown in slide six, we anticipate the Boeing 737 MAX rate to step from the current rate 31 to rate 38 this summer and then rate 42 by March.

A320 family achieved RAID 46 in March with plans to move to RAID 49 before the end of our fiscal year.

Airbus also plans to increase the A220 rate from the current 7.5 per month to 9.2 and then to 10 within our fiscal year. Recall that Triumph supplies cabin insulation, floors, and mechanical controls on the A220.

Honor before Triumph's fourth quarter, the Boeing 787 will move from the current rate 4 to rate 5. While the Airbus A350 will move from rate 5.6 to rate 6. Triumph supplies the entire 787 landing gear hydraulic system, cargo door, actuation system.

and interiors components. Regarding the military outlook, the US Defense budget rose approximately 60 billion in 23 and the 2024 request is up another 26 billion signaling demand stability over the next two years.

Primes total military sales were up 18% year over year. 34% sequentially the platform such as the CH-53 helping to drive our fiscal 23 results.

Finally, aftermarket inductions across military and commercial platforms for maintenance, repair and overhaul are up 24%.

year over year to over 35,000 components.

Together, these OEM and MRO increases across all our end markets, support our fiscal 24 guidance, and long-term business outlook. So overall, very good news on demand trends. Thank you.

I want to share an update relative to our proprietary product development efforts in the systems area. And it's important to our value generation efforts.

For fiscal 24, approximately 72% of our sales are for proprietary products, excluding our third-party MRO business.

Our technical staff maintain robust product roadmaps.

so that intellectual property, technology, and product development investments are directed towards emerging customer needs.

We are targeting new starts as well as takeaways on existing programs.

By partnering with our customer to solve their most difficult challenges,

We received over 30 million in customer-funded contract research and development commitments in the last 12 months to augment our self-funded R&D.

Turning to slide seven, you can see some of the positive results of these joint R&D efforts.

New applications include next-gen landing gear systems, military gearboxes.

Electric aircraft components, fuel pumps, fuel hydraulic actuators.

Thermal vapor cycle compressors and engine controls, all products with valuable aftermarket demand.

I'm particularly happy to have content on GE's new LM-25NX military engine.

and new solutions for 6GN fighters. This customer engagement was made possible by our customer-focused teams.

Discussing engagement was made possible by our customer focus teams who are shaping future requirements.

and identifying takeaway opportunities to expand our backlog.

Priorim strong financial and operational close to fiscal 23, along with our proprietary products.

Prime strong financial and operational close to fiscal 23, along with our proprietary products and end market growth.

Our key enablers to enhancing our long-term value.

None of this would have been possible without the triumph team members whose engagement and accomplishments in fiscal 23.

Make it possible for the company to achieve its potential.

Together, the culture we've created at Triumph helped us manage through the last three years and positioned the company to sustainably execute our profitable growth strategy in the years to come.

Jim will now take us through the fourth quarter results and our detailed outlook for fiscal 24. Jim.

Thanks, Dan and good morning, everyone. Triumph's fourth quarter results succeeded our expectations with significant revenue and margin growth over the prior year period. On slide eight are the Consolidate Results for the Quarter. Revenue was $393 million.

for the continuing business excluding the vestitures and accident programs. Organic revenue increased 21% over the prior year quarter.

We benefited from organic sales growth in our largest programs and in all our end markets.

Adjusted operating income for the quarter was $60 million, representing a 15% margin, an increase of over 400 basis points from 11% in the prior year period.

Adjusted EBDAB for the quarter was $68 million, representing a 17% EBDAB margin, which is a 500 basis point improvement over the prior year period. Increased demand in all our markets, especially the aftermarket, was a key driver of the significant margin improvement over last year, along with pricing and cost reductions. Triumphs fully results for fiscal 23 were also...

and 11% operating margin, up over 200 basis points for the prior year.

Adjusted e-bid app for the year was $196 million.

That is a 14% EBITDA margin, which is a 200 basis point increased over the prior year.

Our segments tables are attached to the press release, and please note that the segment formerly known as structures is now called interiors. This name change more accurately reflects the ongoing focus of that business, following the completion of our efforts to reposition the segment.

We are encouraged by the progress we have made, and would note that interiors is benefiting from a strong backlog in growth forecast.

We also expanded our disclosures over the last year to include revenue by end market, including commercial and military, and then OEM and aftermarket under each. Five Tensions are commercial market revenue. For the quarter, commercial revenue of $237 million was 60% of total revenue.

Commercial OEM sales were $141 million, and grew 35% in the continuing business. This growth was driven by increases in both volume and price in key programs, including the Boeing 737 and 787 programs. This growth was driven by the Boeing 737 and 787 programs.

Commercial aftermarket sales grew 51% in the continuing business. On strong demand as commercial air travel has continued to ramp.

My 11 shows our military revenue. For the quarter, a military revenue of $144 million was 37% of total revenue.

with military OEM and after market revenue grew compared to last year that supply chain recovery benefited this market.

The remaining 3% of our revenue is non-abiation, which is a growing and profitable business represented about 12 million of sales in the quarter.

Our sales have exchanged towards aftermarket, it's having a positive impact on margins and cash flow.

In the quarter, total African market sales represented 41% of our revenue, up from 31% in the prior year.

Our portfolio actions and our growing aftermarket demand have both contributed to this positive mix change and we expect this trend to continue as we move through fiscal 24.

Our free cash flow walk is on slide 12. Our $52 million of cash generation in this quarter included $70 million reduction in our networking capital driven by the fourth quarter sales volume.

That supply chain is continue to improve. We've been able to reduce the inventory we've been carrying.

We also incurred additional $14 million in interest payments in the quarter to the timing of our refinancing.

On slide 13 is our net debt liquidity. During the fourth quarter, we complete the refinancing of a substantial portion of our debt, issuing new 9% first-lean notes, and retiring two series of notes that were due to mature in 24.

This transaction extended those maturities to 2028.

Providing additional liquidity and enhancing our financial flexibility, including the ability to pre-pay a portion of these new notes at a reasonable premium.

At March 31st, we had just under $1.5 billion net debt, and our cash availability was approximately $287 million.

Our next maturity is the 499 million of notes due over two years from now in August of 2025. These bonds are currently designated bonds that can be used to exercise our outstanding warrants for stock to reduce this debt. In the quarter, we receive $4 million of proceeds for more in exercises and retire $1 million of these designated bonds.

Our fiscal 24 guidance begins on slide 14. The bridge of our FY 23 to FY 24 revenue is at the top left. Adjusting for approximately $78 million in fiscal 23 sales from exited businesses.

And based on anticipated aircraft production rates, we expect organic growth of 7% to 10% fiscal 24.

Aftermarket volume is the largest component of the increase.

followed by OEM volume, pricing, and an increase in non-Abeation revenue.

The aftermarket is expected to grow at a solid 9% rate, driven by continued expansion of overall air travel domestically and internationally.

First of all, we am revenue growth is driven by production ramps on programs such as Boeing 737 and 787, and the Airbus A320 family.

Non-evation sales are expected to increase driven by the previously announced work supporting how it's our sustainment. The top right chart shows our EBITAP growth over the last three years and guidance for FY 24.

We're proud of this positive trend.

Our adjusted EBITDA margin is improved from about 7% in fiscal 21 to 12% in fiscal 22 to 14% in fiscal 23. And our guidance indicates up to a 60% consolidated EBITDA margin in fiscal 24. We also broke up Jahrramento December 22, 2012 and detected the minimum costs of significant economic costs in fiscal 2021.

The CBDM margin expansion has been driven by a number of key factors, including the reshaping of our portfolio, increasing operational efficiencies.

The CBDM origin expansion has been driven by a number of key factors, including the reshaping of our portfolio, increasing operational efficiencies, improving the pricing in terms of our contracts.

And from increased demand from higher OEM production rates and a ramping aviation aftermarket.

The bottom left chart shows our improving quarterly free cash flow cadence for the last two years and the anticipated cadence in fiscal 24.

We expected January a positive free cash flow in fiscal 24, including normal seasonality with working capital growth using cash in the first half.

to support higher deliveries and resulting cash generation in the second half.

The bottom right chart is our unlevered free cash flow bridge from fiscal 23 to fiscal 24, which shows our free cash flow before interest.

As previously noted, fiscal 23 included $24 million in non-recurring cash uses.

As previously noted, fiscal 23 included $24 million in non-recurring cash uses and $32 million in networking capital increases.

We anticipate a modest networking capital improvement over fiscal 24.

We anticipate a modest networking capital improvement over fiscal 24, and our largest driver is earnings growth.

We're expected to drive just over half of the unlevered free cash flow improvement. Turning to slide 15, you'll find our detailed fiscal 24 guidance.

We expect revenue of 1.39 to 1.42 billion. That's 7% growth in the continuing business.

and cash from operations of $60 to $80 million. After $25 to $30 million of capital expenditures, we expect to generate $35 to $50 million of free cash for an FY24.

That's up to $123 million improvement and free cash flow from fiscal 23. We expect $165 to $180 million of operating income, and $210 to $25 million with just an EBITAP, representing up to a 16% EBITAP margin. Interest expense is expected to be $154 million, including a hundred...

We would note that estimates after the first year can change significantly as we have seen the past few years.

In summary, it was a strong finish to a solid year and with fewer one-time items than past years.

We complete our portfolio actions and are clearly positioned as an aerospace systems and aftermarket company.

24 were focused on executing on our plan to continue to grow revenue, margins, and cash flow, and increase shareholder value. We were in the planning process for an investor day in the fall, and looked forward to sharing our multi-year targets and bridges at that time.

Now I'll turn the call back to Dan. Dan? Thanks, Jim. Triumph's performance in our fourth quarter and fiscal 23 underscores that were a stronger systems than aftermarket driven company.

with a larger and more profitable backlog and financial results that are steadily improving year over year towards the targets we set in fiscal 21.

We entered our fiscal 2024 with an optimized portfolio of businesses, programs, and products at a time of accelerating customer demand.

Our increasing mix of aftermarket and IP driven OEM sales gives us confidence in our fiscal 24 guidance in long-term outlook.

Jim and I are happy to take any questions you have. We will now begin the question and answer session.

Again, to ask a question, you may press Star then one on your telephone keypad. If you're using your speaker phone, please pick up your hand set before pressing the keys. If at any time you would like to withdraw your question, please press Star then two.

We ask that you please limit yourself to one question and one follow-up on today's call. You may read during the queue if you have additional questions.

At this time, we will take our first question, which will come from Chilo Kyonglu, wouldn't Jeffries. Please go ahead with your question.

Thank you so much and good morning, Dan and Jim. First up, can I get the Excel backup data behind slide 14? That'd be great, as we could get that first size. So I appreciate those slides, that's super helpful. I guess I wanted to go actually to the next slide, because so over.

but in terms of the pension items you mentioned becoming a significant headwind in fiscal 25 with the contributions there, how do we think about those numbers in the context of your free cash flow generation and maybe that's something you'll discuss in the fall?

Yeah, thanks, Sheila. And I'll look for that Excel spreadsheet and let you know. But I think the pension isn't interesting one because it's volatile in the out years. And as you know, last year, at the same time last year, we had only a million dollars or so per year funding forecast.

It's only the next year that really matters because after that it can change dramatically based on market conditions, interest rates, returns. So what we're focused on is the $15 million in the coming year. If you look at the pension liability on the balance sheet, it went from up about $58 million only.

So but the funding went up a lot more than that and someone has to do with elections which we're going to revisit and consider before the next year but in the fiscal 24 we have 15 million dollars to deal with which we're planning for.

Got it. Okay. And then just a quick follow up on the interior, my margins, you know, this is like one of the, as you guys mentioned, the best quarters you guys have had. Adjust the deeper dot margins of 7.6% in the quarter. Is that sort of a baseline we should be thinking that for profitability? Could you repeat the number you just said?

Oh, 7.6% I believe was the adjusted either. Margin.

Right, right. Look at margins are going to continue to approve. And you've seen, I went through the consolidated EBITDA margin, which doubled from 7% to 14, and we're projecting up to 16 next year. The margins across the business are going to continue to approve from leverage on additional revenue. So we got gross margin falling through without increasing fixed expenses. So the trends are positive across the board and all the markets, including interiors.

up a strong note for the year. On the organic sale, I'll bring you mentioned the aftermath of the 9%, 7% and 9% of the God for the year or 7% and 10% for the year. Is it, surprise is not stronger just given the trends that you're seeing? Is there something that's all setting that or maybe just timing or we're up against tough cops? Any color on that dam would be appreciated, thanks.

You bet, we track the inductions that come into all of our MRO sites month over month, and they steadily increased through the fiscal year.

Roughly started out the year below 2000 a month, and they were hitting 3000 by the time we got to March. So 50% increased to the course of the year. So we're encouraged by the return of service of aircraft, international open up, as you know.

China is going to expand our TASA site, which is in Thailand, is seeing increased traffic. So aftermarket is going to continue to drive. Where we really want to extend our aftermarket is in spares. Spares came down in prior years as people just went to the boneyard and extended service intervals.

partners and air friends.

So, we're excited about the future in the aftermarket.

Appreciate that. And then just, Jim, just as a followup on kind of the pre-cashful, finally turning positive, which is great. It's about 2.5 to 3.5% of sales on kind of your guide. We've long talked about how getting that to mid-di-simple pitches. How do you think about that? I'm gonna pick your drive. So it was just the cash interest coming down, working capital improvement.

in 25 and then the higher single digits in 26. Appreciate it, thanks guys. And our next question will come from Miles Walton with Wolf. Please go ahead with your question.

Thanks, morning. I was hoping you could maybe give us a couple of them moving parts from an EPS perspective. I think you've given us most of them, but when you put it all together and obviously you've got the warrant issue as well that I think has an interest adjustment, is the EPS for fiscal 24 somewhere closer to 50 cents? Is that about the right?

morning. I hope you could maybe give us a couple of moving parts from an EPS perspective. I think you've given us most of them but you know when you put it all together and obviously you've got the warrant issue as well that I think has an interest adjustment. Is the EPS for fiscal 24 somewhere closer to 50 some working DPK huh?

So I think we're trying to give you the building blocks. The reason we didn't guide the EPS is because of the moving shear account, as you mentioned. Shear accounts skewed by a pro forma warrant accounting, which has to assume that all of them have exercised. And then there's exercises. So during the period we had $5 million worth of warrant exercises, some of which increased shares and reduced debt.

So we're going to give you all the components. So I think probably in the fall of coal, we can talk you through each of them, and you can make your own assumptions about numbers, shares, outstanding. And so that's the intent there. We're going to get back to EPS guiding as soon as the war ends exercise.

And what is the outlook for that to sort of be realized at this point?

Well, more in the quarter, there was 5 million worth exercise about 1 million of that research retired and that was tendered for shares and then 4 billion of cash was raised. So the market will dictate when they transact, they expire in December .

One of the slides that was interesting on slide three to sort of implied what the margin guidance is between the OEM the aftermarket and that 12% I guess implied OEM margin and the 25% implied aftermarket margin are those sort of improving in tandem.

Is there more of an improvement you're seeing in one side or the other? Just more color there. Both this year and into next year if you can.

They're both improving after markets improving more than OEM. And our mix went from 31% to 41%. So the mix alone drove more profitability, but even within that 41%, we're seeing higher margins because there's just a flow through from the operating leverage as sales increase and we don't increase fixed costs. Okay, okay. And then Dan, you've had that 300 million.

You've been the target out there for fiscal 25 is the trajectory you're putting up for 24 enough to maintain that for 25 at this point. We think so. It's a quarter to quarter measurement. Although it's the multi-year goal, we're tracking the OEM rate so closely. As Jim mentioned volume is our number one.

lever along with aftermarket to hitting that number and The direct conversations I had with with Boeing and Airbus in the last week Give us confidence that those rate step-ups that they're advertising are gonna happen There's no doubt there's a lot of hand-to-hand cop-bat on on shortages, but as I mentioned in my script The percentage of on-time delivery with suppliers is improved in the quarter to the low 90s. We want to get it to mid 90s or

and the bridges on both profitability revenue and free cash flow.

Okay, thanks so much. You. And our next question will come from Ron Epstein with Bank of America. Please go ahead with your question.

Hey, good morning guys. Good morning.

So we got the free cash flow positive, right? That's great. You know, check, you know, the business cleanup is going. I guess a big picture question, you know, where to from here? When you think, you know, we've kind of gone through, you know, kind of the worst of, you know, the downturn and how disruptive it was on the company and so on and so forth. But when you look out five years from now, 10 years from now, I mean, what's your vision for where Triumph could be? Yeah, thanks, Ron. And you deserve to ask that question because you've been with us for the whole journey.

I've looked at our product lines and we've got great content and we talked about the IP expansion. In five to ten years, what you're going to see is Triumph as a market leader in fuel pumps and heat exchangers, gearboxes, and actuation. And as the fleet evolves towards a more electric fleet, you're going to see us adapt our products.

to meet that need. And the reason I know this is happening is because our customers are funding us to do the R&D right now for the platforms that'll be fielded in that five to 10 year window, whether it's Airbus doing an electric regional jet that requires a gearbox to transfer electrical power to the propellers, or whether it's additive manufacturing that will replace the current castings.

on gearboxes, we're making those investments.

We're helping on the next-gen variable bypass jet engines. I mentioned GE, the LM25NX. We've got key roles on those fuel pumps. So we're helping on the next-gen variable.

We can tell that the pipeline of technology and products is going to be transitioning into new starts and then production. So, you know, we don't have to guess what the future is going to look like because we're already working on it. And I think you'll see us in aftermarket expand our services, the FAA, ATA chapters. Mr. Triumph will continue to be.

you know, supplies we do today, thrust reverser overhaul and engine accessories, but will branch into other products. And the investments we're making in partnerships will make us a more global company in five years, especially in Asia and the Middle East. So, you know, think of Triumph as a company that's even has a stronger portfolio than we had in 2010.

when they, when Triumph went down the path of structures, we're gonna have a mix of business that's comparable to the mugs, the parkers, the eatings, with a much bigger footprint in terms of global markets. And then, and then.

How much of the mix do you think will be defense? What's your goal for that between defense and commercial? Like ultimately?

So when we started, we were 80-20 commercial defense, and we're now 37%.

And we're getting to the point where there's enough balance and diversity in our mix of business that we can be more selective on what we pursue based on its contribution to cash flow generation and debt reduction.

So we have plenty of both now and it's a good position to be in because as mentioned the budgets are strong on the defense side. So you know ultimately we may level out at 40 to 45 percent defense but that number is less important.

and the contribution of the individual programs to our financial goals. Everybody on the management team is focused on debt reduction and free cash flow generation. And you're already seeing top line is now starting to grow in the core and earnings are coming up. Now the focus is on cash.

If I may just one quick follow on, in the current market, I'm certain you guys are seeing investors starting to see some

virtually no usable spare parts, USM parts out there. There's nothing out there. There's been a bigger push in the PMA because of airlines are just looking for parts. Is there anything medium term you guys can do to kind of grow the spare's business?

In our OEM businesses, we've got depots that are embedded in the production plants. And so recapturing our aftermarket tail is definitely a priority, whether it's hydraulic fuses or all the consumable.

hold back bars for the military. Every time an FA-18 goes off the deck, it's a triumph hold back bar. So we've got factories that are really focused on extending the aftermarket sale for the OEM products that we have. I understand your point on used serviceable materials.

For us, it's the regional expansion and aftermarket. So Asia, Middle East, potentially Latin America.

These are markets that we don't really apply into a great extent. So we'll see volume growth through a regional expansion.

Thank you very much. Thank you. And our next question will come from Michael Cermoli with Truist. Please go ahead with your question. Hey, good morning, guys. Thanks for taking the questions and congrats on getting to the free cash flow here.

Maybe, again, just to stay on that topic, I think it's been, you know, kind of six years or kind of on spiritual question on that topic, six years since you've been here, you've got the renamed interior structure. I mean, is there any more portfolio shaping left? I mean, do you have the core businesses now? And I guess, you know,

So what's left is interiors. And remember, we posted these numbers for Q4 and fiscal 23, with our interiors business being largely break even. So we've got a lot of upside here. That business was a 20% business in the past.

You know, we expect the volume to double over our planning horizon and it's a really good plant. We've consolidated all the work down into two factories in Mexico. It's very cost competitive, very lean. So we're bullish on interiors and we think it's going to be a big tailwind to margin expansion and cash flow in the future.

And it's a business that we do well. You know, we are a market leader in that space, whether it's insulation or cabin floors, ducting those were all strengths for us. So we're excited about it. But overall, you know, the six years we've been coming at Triumph has led to the portfolio we've got today. And although we may do some minor product line exits.

We have the business we need now to deliver on the restructuring and transformation. We have the business we need now to deliver on the restructuring and transformation.

Got it helpful. And then Jim, just on the free cash flow, ultimately grinding that to mid single digits and then high single digits, what can you give us more color maybe behind the mechanics there? Is it going to be just managing that cap structure and kind of pairing down that interest drain?

.

So thanks, I think it's important to note that I'm not relying on capital structure improvements for the cash flow. This is really operating cash flow coming from volume increases from demand in OEM and aftermarket and as they're growing installed base we're gonna have a bigger percentage of aftermarket moving forward.

So it's operationally driven, not capital driven.

Got it. Perfect. Thanks, guys. I'll jump back in a cube. Thanks, Michael.

And our next question will come from Jack Ayers with TD Cowen. Please go ahead with your question. Hi, thanks. Good morning. This is Jack on for CHI today.

Next question will come from Jack Ares with TD Cowan. Please go ahead with the question. Hi, thanks. Good morning. This is Jack on the Kai today. Congrats on the border.

So yeah, so I want to just start on Q4, obviously really, really strong improvement with margins growing sequentially. And I just wanted to just make sure we're calibrated here. I know you've called out that IP transaction on the commercial OEM side.

I'm not sure if that was from a previous quarter, just any color there, and just the associated earnings of that would be really helpful.

Thanks, Jack. That was a couple quarters of those and cute too. That transaction happened. Fourth quarter was very clean. No material at one time.

Okay, got it, got it, that makes sense. And then lastly, I just kind of wanted to ask about military and new programs you're watching here as we look out over the next few years. And I know Boeing called out the T7 sort of delays here for a couple of years. And I know you guys have pretty good content there. I just,

want to hear your perspective on that issue and then just any broad color on new programs and military. Thanks.

You bet. So we're focused on the mature programs that are in production now like F-35 and we've been approached by Lockheed Martin to develop content that would upgrade the aircraft in areas like cooling, heat rejection, actuation. So...

That's our first place to start. Then we're on the emerging programs like M Q2 5. We do have a small content on T7A. It used to be bigger when we had the structures, but we actually did that. So T7A is not a big driver, but on the six gen fighters that are now getting funded.

We've got content across the different OEMs. And I mentioned GE's new military engine, the LM-25NX, which has a lot of advantages. And the benefits of two engine competitions are pretty well understood.

So, we're excited. I'd say Rotacraft is a very strong area for Triumph. So, as CH53K gets their L-Rep awards, we go up in volume. We have significant shift set content on that platform.

And then they're working on the Army's future vertical lift platforms. We're on both of those teams for FAR and FLARA. And it's a time when our customers are also doing tech refresh to their existing fleet. So think Apache. We do a lot of heat exchanger work for the Apache. We do gearboxes for that as well.

One area that we've had more inquiries that late is in classified programs.

and whether it's Northrop Grumman or Lockheed Martin, we've had more in bounds on that. So we've been working with Lockheed on the digital thread capability, which they'd like to have all their suppliers put in place to provide improved data sharing, whether it's engineering or manufacturing data.

and we're collaborating with them on supply chain as well. So I feel like the defense business gives us all sorts of ancillary benefits. The cash terms are good, the customer funds a lot of the R&D, and they're pulling us in the early phases. So I'm happy to have expanded our defense work and.

it's going to benefit us going forward. That's great. Thanks, guys.

That's great, thanks guys. Thank you.

And as a reminder, if you have a question, please press star then want to join the queue. Our next question will be a follow-up from Miles Walton with Wolf. Please go ahead with your question. Now thanks for letting me back in. I did have just one quick one I forgot to ask. I realized you had sold at 767.

facility to her in the middle of last year, but I'm curious, is there any liability you all have to carry for the Boeing quality issues that were discovered in the 767 fuel tank? Don't know if there's anything that predated the sale that might be a liability you're carrying today. No, not at this time. Recall, we sold this business in July of last year. And at that time…

We had Boeing consent and there was no material issues that were outstanding, material manufacturing issues related to any of the programs there. And we continue to support Boeing and Boeing both defense and commercial across the board. You know we've done 15 divestitures, we've not had reach back from prior asset sales.

And, you know, we're committed to quality. I'm very proud of the performance that I mentioned in my comments of cost to poor quality. So we'll support any inquiries that we've received in the future and we'll update investors as appropriate, but right now it's not a concern.

Okay, perfect, thanks. And our next question will come from Miller-Pelpin. I'm Collevin Goldman Sachs. Please go ahead with your question.

Thanks. And our next question will come from Miller. Help a nine-quiz Goldman Sachs. Please go ahead. Good morning, everyone.

I wanted to ask about slide six where you've laid out the OEM rates.

You've had a slide like this for a little while now that, you know, maybe like a little bit more optimistic than some of the others in the space.

I guess, you know, there's been a lot of short-term noise and movement, but maybe maybe the 24 and the 25 that you've had all along are getting closer to. So I don't know. I was just curious to hear your level of confidence in these. Is there one or two that?

Look a little bit more of a long putt to you than the others. I guess specifically the max, you know, maybe has the most questions right now with the fitting issue, how confident are you on that 38 and 42?

And then overall, Dan, I think you said it, I think you quoted an eight to 10 month lead time. And so the right side of this chart.

is about eight to 10 months from now. Are you at most of these rates now? So it varies by factory, but yes, we're seeing pickups in our feeder plants to support it. And it's not just on airframe components, it's also on engines. After the quarter closed.

We received the largest contract that's been awarded to Triumph on my watch over eight years for a GE LEAP engine gearboxes and we'll put out a press release on that tomorrow.

But that's a signal of GE's confidence in demand for leaf engines for both the max and for the A320 family. And if you recall, in the middle of fiscal 23, there was a bit of a slowdown as GE allowed the supply chain to catch up.

And we finished Q4 with a very high volume of output because demand is coming back. So there's leading indicators not only with triumph as a subtier supplier, but also the ancient providers that the rates are coming up. And I've been watching this space a long time. I remember touring Boeing's plant when the triple seven was initially rolled out.

The first all digital aircraft, you know, been through their plants. When they did the, you know, 787, which really broke the mold on composite to new supply chain approaches. And then the max line, I've been down many times, which is very automotive in its style. So they have the capacity to ramp up the line.

Yes, park constraints are real. Boeing is putting tremendous amount of people out in the field to expedite any shortages and capacity that was under invested in during the pandemic is starting to ramp up. So I have confidence in the rates. There seems to be no shortage of end market demand.

You read about the orders for these, so the backlog is growing. And the step-ups on 787 from 8.4 to 8.5, we were at 14 on that before. And the demand for that platform is very high. If we can get that back to 10, as Boeing has advertised, by 2025, 2026, that's a huge tailwind for Triumph.

hitting getting back to like 2 billion in revenue and generating the kind of cash conversion that you all expect these rates make that possible.

Okay. Can you estimate, I know you explain this different by facility, but can you estimate that the enterprise wide max rate that you're sending out of the company at this moment?

So why don't we take that as an action? We can address it offline. I don't want to do it from the hip, but we know it by plan. And because as I mentioned, six, six to 24 plans support the max.

We have interiors content, actuation content, controls, and engine gearboxes through GE LEAP CFM. So it's a broad array of plants, and I'd rather get it right and do it. But I can tell you it's coming up. We've made significant CapEx investment in our...

gear manufacturing business to support the ramp. And that was key to winning this GELE follow on contract is it helped us support the volume and maintain pricing. So it's a coming attraction for sure.

Okay. And so then to follow on all that in your bridge on slide 14 and kind of to Sheila's point about asking for the Excel, that net OEM volume.

liver looks pretty small relative to five six. Why is that? And could you also just say what that number is and that blue sliver there in million dollars?

So, Jim, I don't have that sliver quantified in front of me, but it is smaller than the aftermarket volume. And in fact, remember, OEM sales are not as profitable as aftermarket sales. So in terms of generating profit and free cash flow, the aftermarket are actually more important. The OEM volume has a lot of different programs. I think the best way to see what might be in there.

would be to look at our slide 18, which is the top programs and backlogs.

And you'll see that a mix of military and commercial. Now you'll see the 3.7, which is 15% of our two-year firm backlog. It's actually more like 10 or 11% of our total sales because all of our sales aren't backlogged. There's a lot of book and ship. The diversity of the mix here is why the exact rates of any one program can be mitigated by rate changes in the other direction of another program. So.

It is a balanced growth, after market leading it, and the right behind it is the OEM. And, Noah, you can appreciate we're trying to be conservative here and not get ahead of the OEM rates or assume faster recovery than what they've advertised. So our guidance is consistent with that mindset. Okay. All right. Thanks so much.

leading it and the break behind it is the OEM bias. And Noah, you can appreciate we're trying to be conservative here and not get ahead of the OEM rates or assume faster recovery than what they've advertised. So our guidance is consistent with that mindset. Okay. Alright, thanks so much. Thank you.

And our last question will be a follow-up from Michael Cermoli with Truist. Please go ahead with your question.

Hey guys, thanks for taking the follow-up. I guess just to, I was gonna hone in on where Noah was going there, but specifically on the the A320 rate in regards to what you know Airbus has said. I know they're dealing with some supply chain issues, but you know they're still targeting you know that that's kind of 60, 65 by the end of 24 and 75.

issues, but they're

You have to look at very timely data in order to, you know, to project the future revenues, the future build rights from there. Okay. Okay. Fair enough. Thanks, guys. And this concludes our question.