Q1 2024 Triumph Group Inc Earnings Call
To improve operations and grow our proprietary an aftermarket sales and margins three.
Three return to positive free cash flow to help Delever the company and.
And four generate the shareholder returns are investors expect.
Triumph as a stronger company today as a result of our actions.
Allowing us to compete successfully in the market against larger and more valuable peers.
Turning to slide three I'll summarize the highlights for the quarter.
First we generated organic sales growth of 21% over the prior year quarter.
With increased sales reported across all our end markets.
Year over year sales growth was 14%.
Driven by improving commercial OEM and MRO demand.
Note that aftermarket accounted for 41% of our queue for sales.
While military programs account for 37.
Both up from prior years.
Key drivers for the increased Q for revenue.
Included higher volume on the Boeing 737 and 787.
<unk> and spares for military rotorcraft.
G E leap gearbox shipments and the cell overhauls.
All tailwinds on growth platforms, which we expect to continue in fiscal 2004.
Profitability for the quarter materially exceeded prior year levels.
When a fiscal year basis, we achieved our highest margin percentages since 2014.
A result of our strong execution and improved business mix.
Key profitability drivers for the year included higher spare sales.
Cut to end of previously negotiated price increases.
Development program transitioned to production higher sales at our Mro's sides, and lower SG&A an overhead costs.
Our cost reduction results enhance our operating leverage in other words, we won't have to add back support cost as volumes increase.
Was encouraging here, we saw higher EBITDA margins across all our primary product lines year over year from actuators to engine controls gearboxes to product support.
We grew our backlog by 11% as triumph continues to benefit from our broad representation across platforms customers and and markets.
<unk> are differentiated solutions gained traction with our customers who are helping to fund our R&D efforts.
Our backlog improvements in size diversity and profitability.
Are rooted in our investments in new products and technology portfolio changes in pricing initiatives.
In addition to the long term agreements, which we secured in recent years across all our businesses.
Log renewal is key to triumph sustained long term growth.
Beyond higher OEM rates, and MRO receipts, new wins and the space market.
And for products supporting the war in Ukraine enabled us to exceed our goal of generating 25 per cent 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 and 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 24 and beyond while expanding our capex investments and funding working capital and supported the commercial ramp.
Taken together the momentum in our end markets are operational in pricing improvements and.
Expanding backlog lay the foundation for our fiscal 2000 for guidance.
Triumph made great strides 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 reduced the financial risk establishing over 100 high performance teams to streamline our execution.
Producing 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 seventies percentages to the low nineties to free up captive inventory.
We remain encouraged that both <unk> 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% a pre pandemic levels the.
The primary driver for both new aircraft orders production rate increases in MRO spend.
Similar growth in the international travel is benefiting are wide body mro's sales.
Robust commercial demand helped increased tribes fiscal year 2023 bookings 31%.
Including $171 million in new contracts in March alone, our highest of the year.
Six of our 24 factories will benefit from Ryan Air as recent order for 300 Max turns.
And those from United Airlines.
Turning to slide for new wins totaled $205 million for the quarter and 743 for the year.
Important military wins for the quarter included content on the siege fifty-three helicopter.
Including the blade fold and blade damping system and engine oil coolers.
And an F 35 drag shoot actuator. We also received a large order for the Triple seven howitzer magazine components.
Increasing volume is our biggest enabler for top and bottom line growth.
Boeing and Airbus continue to forecast higher OEM production rates and recall the triumph typically steps up our rates 810 months ahead of the Oems due to product lead times.
As shown on slide six we anticipate this Boeing 737, Max right to step from the current rate 31 to raise 38 this summer.
And then right 42 by March.
The 820 family achieved right 46 in March with plans to move to right 49 before the end of our fiscal year.
Airbus also plans to increase the 820 right from the current seven five per month to nine two and then to 10 within our fiscal year <unk>.
Recall, the triumph supplies cabinet installation floors and mechanical controls on the <unk>.
Honor before tribes fourth quarter.
Boeing 787 will move from the current rate for to rate five.
While the Airbus a 350 will move from right 56286.
Prime supplies, the entire 77 landing gear hydraulic system cargo door actuation system and interiors components.
Regarding the military outlook U S defense budget rose approximately $60 billion and 23 and.
The 2024 request is up another 26 billion signaling demand stability over the next two years.
Brian total military sales were up 18% year over year and 34% sequentially.
With platforms such as this age 53, helping to drive our fiscal twenty-three results.
Finally, aftermarket inductions across military and commercial platforms for maintenance repair and overhaul are up 24% a.
Year over year.
To over 35000 components.
Together, these OEM and MRO increases across all our end markets support our fiscal twenty-four guidance and long term business outlook. So overall very good news on demand trends.
I wanted to share an update relative to our proprietary product development efforts in the systems area and.
And its importance 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 unexamined 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 Nexgen landing gear systems military gearboxes.
Electric aircraft components fuel pumps fueled rollick actuators.
Thermal vapor cycle compressors and engine controls all products with valuable aftermarket demand.
I'm, particularly happy to have content on <unk>, New album 25, an ex military engine.
And new solutions for six Gen fighters.
This customer engagement was made possible by our customer focus teams who.
Who are shaping future requirements.
And identifying takeaway opportunities to expand our backlog.
Brian strong financial and operational close to physical twenty-three along with our proprietary products and.
And 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 2003.
Make it possible for the company to achieve its potential.
Together the culture, we've created a triumph.
Helped us managed through the last three years and positioned the company to sustainably execute are profitable growth strategy in the years to come.
Jim will not take us through the fourth quarter results and our detailed outlook for fiscal 24, Jim.
Thanks standard good morning, everyone.
<unk> fourth quarter results exceeded our expectations with significant revenue in margin growth over the prior year period.
On slide eight or the consolidated results for the quarter.
Revenue was $393 million for.
For the continuing business, excluding divestitures and exited programs organic revenue increased 21% over the prior year quarter.
We benefited from organic sales growth in our largest programs and in 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 EBITDA for the quarter was $68 million, representing a 17% EBITDA margin, which is a 500 basis point improvement over the prior year period.
Increased demand that all of our markets, especially the aftermarket was a key drivers a significant margin improvement over last year, along with pricing and cost reductions.
Trying to fully results for fiscal twenty-three. We're also strong with higher operating income and higher margin.
On slide nine or the annual consolidated results.
Revenue was 137 9 billion.
For the continuing operations organic revenue increased 14% over the prior year.
Adjusted operating income for the year was $159 million and 11% operating margin of over 200 basis points from the prior year.
Adjusted EBITDA for the year was $196 million.
That is a 14% EBITDA margin, which is a 200 basis point increase over the prior year.
Our segment tables are attached to the press release and please note that the segment, formerly known as structure 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 and market, including commercial and military and then OEM an aftermarket under each.
Slide tensions are commercial market revenue for the quarter commercial revenue of $237 million with 60% of total revenue.
Commercial OEM sales were $141 million and grew 35% and the continuing business.
This growth was driven by increases in both volume and price and key programs, including the Boeing 737, and 78 seven programs.
Commercial aftermarket sales grew 51% of the continuing business on strong demand as commercial air travel has continued to ramp.
911 shows our military revenue for the quarter military revenue of $144 million was 37% of total revenue.
Both military OEM and aftermarket revenue grew compared to last year, a supply chain recovery benefited this market.
The remaining 3% of our revenue was non aviation, which is a growing and profitable business represented about 12 million a sales in the quarter.
Our sales of exchange towards aftermarket is having a positive impact on margins and cash flow.
And the quarter total aftermarket sales represented 41% of our revenue up from 31% in the prior year.
Our portfolio actions that are growing aftermarket demand have both contributed to this positive mix change and we expect this trend to continue as we move through fiscal 2004.
Our free cash flow walk is on slide 12.
Are $52 million of cash generation. This quarter included 70 million dollar reduction in our networking capital driven by the fourth quarter sales volume.
Ah supply chain to continue to improve we've been able to reduce the inventory we've been carrying.
We also encouraged additional $14 million in interest payments in the quarter do 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%. Firstly notes retiring two series of notes that were due to mature in 2004.
This transaction extended those maturities to 2028.
Providing additional liquidity enhancing our financial flexibility, including the ability to prepay portion of these new notes at a reasonable premium.
March 31, we had just under $1.5 billion net debt and our cash availability was approximately $287 billion.
Our next maturity is the $499 million of notes do over two years from now in August of 2025. These.
These bonds are currently designated bonds that can be used to exercise our outstanding warrants for stock to reduce this debt.
And the quarter, we received $4 million of proceeds from morning exercises and retired $1 million of these designated bonds.
Our fiscal 24 guidance begins on slide 14.
The bridge of our FY twenty-three to FY 24 revenue is at the top left.
Adjusting for approximately $78 million in fiscal twenty-three sales from exited businesses.
And based on anticipated aircraft production rates, we expect organic growth of 7% to 10% fiscal 2004.
Aftermarket volume is the largest component of the increase followed by OEM volume pricing and an increase in non aviation revenue.
The aftermarket is expected to grow at a solid 9% rate driven by continued expansion of overall air travel domestically and internationally.
Commercial OEM revenue growth is driven by production ramps on programs such as Boeing 737, 787, and the Airbus a 320 badly.
Non aviation sales are expected to increase driven by the previously announced work supporting howitzer Sustainment.
The top rate chart shows are EBITDA growth over the last three years and guidance for FY 2004.
We are proud of this positive trend.
Our adjusted EBITDA margin has improved from about 7% in fiscal 21% to 12% in fiscal 2000% to 214% in fiscal 2003.
And our guidance indicates up to a 60% consolidated EBITDA margin in fiscal 2004.
See but that margin 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.
From increased demand from higher OEM production rates at a ramping aviation aftermarket.
The bottom left chart shows are improving quarterly free cash flow cadence for the last two years and the anticipated cadence in fiscal 2004.
We expect to generate positive free cash flow in fiscal 2004, including normal seasonality with working capital growth using cash in the first half to support higher deliveries in resolving cash generation in the second half.
The bottom right chart is our Unlevered free cash flow bridge from fiscal 23% fiscal 24, which shows are free cash flow before interest.
As previously noted fiscal twenty-three included $24 million and non-recurring cash uses and $32 million networking capital increases.
We anticipate a modest networking capital improvement over fiscal 24.
And our largest drivers earnings growth.
<unk> is expected to drive just over half of the and Levered free cash flow improvement.
Turning to slide 15, you'll find our detailed fiscal twenty-four guidance.
We expect revenue of $1.39142 billion, that's 7% to 10% growth in the continuing business and.
In cash from operations of $60 million to $80 million.
After $25 million to $30 million of capital expenditures, we expect to January $35 million to $50 million of free cash flow in FY 2004.
That's up to $123 million improvement in free cash flow from fiscal twenty-three.
We expect $165 million to $180 million of operating income and.
And $210 million to $225 million of adjusted EBITDA, representing up to a 16% EBITDA margin.
Interest expenses expect to be $154 million, including $148 million of cash interest and we expect $7 million of cash taxes.
Our pension funding forecasts is on page 1950.
$50 million of the estimated required contribution FY 2004.
We view stock for required contributions in the past that may elect to do so in the future we.
We would note that estimates after the first year can change significantly as we've seen in the past few years.
In summary, it was a strong finished with solid year and with fewer one time items in past years.
We complete our portfolio actions and are clearly positioned as an aerospace systems, an aftermarket company.
We extended our debt Maturity's grew revenue expanded margins and improved free cash flow.
For fiscal 24 were focused on executing on our plan to continue to grow revenue margins in cash flow and increase shareholder value.
We are in the planning process for an Investor day in the fall and look forward to sharing our multiyear targets and bridges at that time.
Now I'll turn the call back to Dan Dan.
Thanks, Jim <unk> performance in our fourth quarter and fiscal twenty-three underscores that we're stronger systems and after market driven company with a larger and more profitable backlog.
Financial results that are steadily improving year over year towards the targets, we set in fiscal 21.
We ended our fiscal 2024 with an optimized portfolio of businesses programs and products.
At a time of accelerating customer demand.
Are increasing mix of aftermarket and IP driven OEM sales gives us confidence in our fiscal 24 guidance and 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 one on your telephone keypad.
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Anytime you would like to withdraw your question. Please press star one too.
We ask that you please limit yourself to one question and one follow up on today's call you may rejoin the queue. If you have additional questions.
At this time, we will take our first question, which will come from Sheila tire glue Jeffries. Please go ahead with your question.
Alright, Thank you for making that good morning gaming Jen.
Can I get the backup data behind slide.
Great and I think I got that price tag sale I appreciate that slide says that seems very helpful.
I'd also like to go actually to the next slide.
At the shop online.
Thompson items dementia.
Becoming a significant <unk> 25, but the contribution.
How do we think about.
Dennis numbers in the context of your free cash flow generation, and maybe that something y'all discussing a ball.
Yeah. Thanks Sheila.
I'll look for that Excel spreadsheet, let you know, but I think a pension is an interesting one because it's volatile in the out years and as you know last year at.
At the same time last year, we had only $1 million 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.
But the funding went up a lot more than that and someone has to do with elections, which were going to revisit and consider before the next year, but in the fiscal 2000 $450 million to deal with which we're planning for.
Got it Okay, and then just a quick follow up on that and carriers margins.
Like one of the as you guys mentioned the best quite as you guys had an adjusted EBITDA margins at 7.6% in a corner and that sort of the baseline we should be thinking that far profitability.
Could you repeat the number just said.
076 percent unbelievable suggested EBITDA margin.
Right right.
Look at market is going to continue to improve 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 and across the business are going to continue to improve from leverage on additional revenue right. 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.
Okay, great. Thank you.
And our next question will come from Peter <unk> with Bird. Please go ahead with your question.
Thanks, Good morning.
Just based.
And all the details you guys.
Finishing up.
Nelson year.
Ali organic sales outbreak you mentioned aftermarket.
The song.
And 79%.
71% for the year.
Is it.
Surprising non stronger just given the trends that you're seeing something that's offsetting that or maybe which is timing.
Against prompts any any color on that damn would be appreciated. Thanks.
You bet, we track the inductions that come in to all of our Mro's sides month over month and.
They steadily increased through the fiscal year.
Roughly started out the year below 2000, a month and they they were hitting 3000 by the time, we got to March So a 50% increase through the course of the year. So we're encouraged by the return to service of aircraft Internationals opened up as you know China is going to expand our toss aside which is in Thailand is C.
<unk> increased traffic. So after market is going to continue to drive where we really want to <unk>.
Extend our aftermarket as in spares spares came down in prior years as people just.
Went to the bone yard and extended service intervals now sparing is starting to pick back up and spares carries a stronger margins them even overhaul so.
We are optimistic about aftermarket and we're hiring at those plans that support that.
We are continuing to do joint ventures, with our partners and air France.
So we're excited about the future and aftermarket.
And then just.
Just as a follow up on.
The free cash flow upon the turning positive.
Which is great.
About two and half three 5% of sales on commentary guide.
We had long talks about calling any mid.
Mid to high single digits.
Think about that for a moment that you drive as soon as Jason cash interest coming down working capital improvement.
Same to you.
For their facts.
Yeah. So you see the twenty-four guide at $35 million to $50 million of free cash, let's just the beginning obviously, we're going to ramp and our goal is to be up in the high single digit sort of free cash flow as a percentage of sales.
And the cadence will be we're in the low single digits in 24, and then we'll move kind of into the mid single digits.
And 25, and then the higher single digits in 2006.
Frequent colleagues thanks again.
And our next question will come from miles Walton with Wolf. Please go ahead with your question.
Thanks, Good morning.
Was hoping you could maybe give us a couple of of moving parts from the EPS perspective.
I think you've given us most of them but.
When you put it all together and obviously you would get their warring tissue as well that I think is of interest adjustment is the EPS for fiscal 2004 somewhere closer to 50 cents is that about the right ballpark.
Ballpark.
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 share count as you mentioned.
Sure count skewed by pro forma warrant accounting, which has to assume that all of them have been exercised and then there's exercises. So during the period, we had $5 million worth of Warren exercises, some of which increased shares and reduce debt.
So we're gonna give you all the components that I think probably in the follow up call. We can talk you through each of them and you can make your own assumptions about number of shares outstanding.
So that's the that's the intent there we're going to get back to ETS guiding as soon as the warrants exercise.
Okay, and what is the outlook for for that I'm sorry.
<unk> realized at this point.
<unk> in the quarter, there was 5 million worth exercised about 1 million of that recently 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 .
Okay.
One of the slides I thought was interesting on slide three to sort of implied with the margin guidance is between the the aftermarket in it that 12% I guess implied OEM margin and the 25% implied aftermarket margin are those.
Sort of improving in tandem is there more of a improvement you are seeing in one side or the other.
Just more color, they're both this year and into next year, if you can.
They're both improving aftermarkets, improving more than OEM and our mix went from 31% to 41% to mix alone drove more profitability, but even within that 41% were seeing higher margins because there's just.
Flow through from operating leverage is is sales increase and we don't increase fixed costs.
Okay, Okay and then.
<unk> had the 300 million.
Target out there for fiscal 25 is that the trajectory you're putting up for 2004.
To maintain that trick for 25 at this point.
So we think so it's a quarter to quarter measurement.
Although it's a multiyear goal we're tracking the emirate so closely as Jim mentioned volume is our number one <unk>.
<unk>, along with aftermarket to hitting that number.
The direct conversations I had with with Boeing and Airbus in the last week give us confidence that those right step ups at their advertising are going to happen. There is no doubt there's a lot of hand to hand combat on shortages, but as I mentioned in my script.
The percentage of on time delivery with suppliers has improved in the quarter to the low nineties, we want to get its mid nineties or higher so that you really only work the shortages on an exception basis.
His spirit recovers on their repairs.
<unk> ramp great is going to ramp up their confidence in those step ups and that's the biggest lever for us to just the $300 million. So we will continue to update you on that and the at the Investor Day that Jim mentioned will give more color and the bridges on both profitability revenue in free cash flow.
Okay. Thanks, so much.
Q.
And our next question will come from Ron Epstein with Bank of America. Please go ahead with your question.
Hey, good.
Good morning.
Good morning.
So we got the free cash flow positive for it that's great check the business cleanup is going I.
I guess, a big picture question where to from here.
When you think.
Kind of gone through the worst of the.
The downturn and how disruptive it goes on the company and so on and so forth, but when you look out five years from now 10 years from now what is your vision for we're we're triumph could be.
Yeah. Thanks for on a new deserved asked 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.
Five to 10 years, what you're going to see his triumph as a market leader and fuel pumps and heat exchangers, gearboxes and actuation and as the fleet evolves towards more electric.
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.
For the platforms that will be field is 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 BLM twenty-five Nx, we've got key roles on those fuel pump so.
We can tell that the pipeline of technology and products is going to be transitioning into new starts and then production. So we don't have to guess what the future is going to look like because we are already working on it and.
And I think you'll see us an aftermarket expand our services the.
Chapters, Mr Triumph will continue to be.
Supplies, we do today thrust reverser overhaul an engine accessories, but will branch into other products and.
And the investments, we're making and partnerships will make us a more global companies and five years, especially in Asia and the middle East So.
Triumph as a company that's even has a stronger portfolio than we had in 2010.
When triumph went down the path of structures.
We're going to have a mix of business that's.
Comparable to the <unk> the parkers the eaton's.
With a much bigger footprint.
In terms of global markets.
And then and then <unk>.
How much of the mixed you think will be defense and what your goals for that between defense and commercial like ultimately.
So when we started we were 80 20 commercial defense and we are now 37%.
And we're getting to the point, where there is enough balance in diversity.
And 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 good position to be in because as mentioned in the budget. So strong on the defense side. So ultimately we made love allowed at 40% to 45% defense, but that number is less important than the contribution of the individual programs to our financial goals everybody on the management.
Team is focused on debt reduction in free cash flow generation and you're already seeing top line is now starting to grow and the core and and earnings are coming up now the focus is on cash.
Got it and then if I if I may just one quick follow on.
The current market uncertainty guys are seeing this there's virtually no usable.
Bear part of the U S M parts out there, there's there's nothing out there.
There's been a bigger portion of the PMA because of the airlines you're just looking for parts is there anything medium term you guys can do to kind of grow the spirits business.
Mhm.
And our OEM businesses, we've got <unk> that are embedded in the production plans and.
And so we're recapturing R aftermarket tail is definitely a priority.
Whether it's hydraulic fuses or all the consumable pullback bars for the military Everytime, an FAA team goes off the deck. It's 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 us serviceable materials.
For us it's the regional expansion an aftermarket so Asia, the middle East potentially Latin America.
These are markets that we don't really play into a great extent, so we will see volume growth through regional expansion.
Gotcha. Thank you very much thank.
Thank you.
And our next question will come from Michael ceremony with Truest. Please go ahead with your question.
Hey, good morning back Thanks for taking my question turned off congrats on market until the free cash flow here.
Maybe I can just to stay on that topic I think it's been.
Kind of six year round threshold question on that topic pier since you've been here you've got the the renamed interior structure. I mean is there any any more portfolio shaping left I mean do you have the core businesses now and I guess.
Specifically, thank interiors has has a long life.
Five to 10 year look for for triumph.
Yeah. Thanks, Micheal first remember that the structures business is less than 10% of our sales and metallic structure is now is out of the out of the portfolio entirely. So what's left is interiors.
Remember we posted these numbers for Q4 in fiscal twenty-three with our interiors business being largely breakeven. So we've got a a lot of upside here that business was the 20% business in the past.
We expect the volume to double over our planning horizon.
It's a really good plan, we've consolidated all the work down into two factories in Mexico is 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 to cash flow.
In the future and it's a business that that we do well we are market leader in that space, whether it's insulation in her cabin floors.
Updating those were all strength for us so.
We're excited about it.
But overall the six years, we've been coming a triumph.
It 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.
To deliver on the restructuring and transformation.
Got it helpful. And then Jim just on that on the free cash flow ultimately grinding that to mid single digits, and then high single digits.
Can you can you give us more color may be behind the mechanics. There is it going to be just managing that cost structure and.
Kind of paring down that that interest drag is there any more optimization of working capital.
Should we even think about you guys look at the cap structure may be.
The warrants come to a close here contemplate any sort of equity offerings to sort of manage that interest burden.
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 and OEM an aftermarket.
And it is our growing installed base, we're going to have a bigger percentage of aftermarket moving forward.
But we're pretty conservative in our in our capital structure assumption. So that's only upside for us if we can find ways to optimize that which we will work on but we're not counting on that for our cash flow guidance in terms of working capital and last year, we used I think $32 million roughly of working capital and we're going to generate in the single digits of working capital in 24 is our plan.
<unk>.
And that's because of stabilization of supply chain and really our own internal efficiencies as well.
So that's going to contribute but it'll be a modest contributor because of course, even though we're generating a little bit of cash by reducing working capital we store supporting growth with the remaining.
Inventory working capital so it's operationally driven not capital driven.
Got it perfect.
Perfect. Thanks, guys ultra back in the queue.
Thanks, Michael.
And our next question will come from Jack Ayers with TB Cowan. Please go ahead with your question.
Hi, Thanks. Good morning. This is Jack on for Kai today.
Congrats on the border.
So so yeah. So I wanted to just start on queue for obviously really really strong improvement with margins Brian sequentially.
And I just wanted to just make sure we are calibrated here.
I know you called out that IP transaction on the commercial OEM side.
Not sure if that was from a previous quarter, just any color to the air.
And just the associated earnings of that would be really helpful.
Thanks, Thanks check that was a couple of quarters goes in queue to that transaction happened fourth quarter was very clean no material at one timers.
Okay got it got it that makes sense.
And then and then lastly, I just kind of wanted to ask about military.
And new programs, you're you're watching here as as we look out over the next few years and.
Bowing.
Called out the key seven sort of delays here.
A couple of years and I know you guys have pretty good content. There I just wanted to hear your perspective on that issue and then just any broad color.
Programs and military thanks.
You bet.
So we're focused on the mature programs that are in production now like a 35 and we've been approached by Lockheed Martin to develop content that upgrade the aircraft in areas like cooling.
<unk> projection.
<unk> so.
That's our first place to start than were on the emerging programs like M. Q25, we do have a small content on <unk> used to be bigger when we had the structures, but we exited that so two seven days not a big driver.
But on the six Gen fighters that are now getting funded we've got content across the different oem's and I mentioned Ge's, new military incident, Ellen twenty-five Nx, which has a lot of advantages and the benefits of two engine competitions are pretty well understood.
So.
We're excited I'd say rotorcraft is a very strong area for triumph. So as to age 53, K gets their El Rep Awards. We go up the volume we have significant shifts that content on that platform.
And then they are working on the army's future future vertical lift platforms were on both of those teams.
So far in flora and.
It's a it's a time when our customers are also.
Doing tech refreshed 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 and even though the army starting modernization, they're going to operate their legacy plea for a long time, and so they're putting fixes and the components that we do especially at our engine control.
Business to refresh them and increase their reliability so for us military abroad diverse set of platforms.
One area that we've had more inquiries of late as in classified programs.
And whether it's Northrop Grumman or Lockheed Martin we've.
We've had more inbounds 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 our defense work and it's going to benefit us going forward.
That's great. Thanks, guys.
And as a reminder, if you have a question. Please press star the one to join the queue.
Our next question will be a follow up from miles Walton with Wolf. Please go ahead with your question.
Oh, Thanks for letting me back in I did have just one quick one I forgot to ask I realize you had sold the 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.
Boeing.
Quality issue that were discovered in the 767 she'll tank don't know if there's anything that predated the sale that might be a liability or carrying today.
No not at this time recall, we sold this business in July of last year and at that time.
We had bowling consent and there was there was no material issues that were outstanding material.
Factoring issues related to any.
The program's there and we continue to support Boeing and bowling both defense and commercial across the board you know we've done 15 divestitures, we've not had to reach back from Pryor asset sales and we're committed to quality I'm very proud of the performance that I mentioned.
My comments about cost poor quality so.
Will support any inquiries.
See in the future and we will update investors.
Appropriate, but right now it's not a concern okay.
Okay perfect. Thanks.
Okay.
And our next question will come from the network <unk> with Goldman Sachs. Please go ahead with your question.
Hey, good morning, everyone.
Good morning.
I wanted to talk about or ask about the slide six where you've laid out.
The Emirates.
You had a slide like this for a little while and all that.
Maybe like a little bit more optimistic than some of the others in the space.
I guess, there's been a lot of short term.
Noise and movement, but maybe maybe.
Maybe the 24 and the 25 that you've had all along or we're 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.
A little bit more of a long path to you than the others.
I guess, specifically the Max maybe has the most questions right now with the fittings issue. How confident are you on that 38 and 42.
And then overall that I think you said it I think he quoted in eight to 10 month lead time.
And so the the right side of this charge.
Is about eight to 10 months from now are you at most of these right now.
So it varies by factory, but yes, we are seeing pick ups and R. Peter plans 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 it's been awarded to triumph on my watch over eight years.
For a G E leap engine gearboxes, and we'll put out a press release on that tomorrow.
That's a signal of ge's confidence and demand for sleep engines for both the Max and for the <unk> family and if you recall in the middle of fiscal twenty-three there was a bit of a slowdown.
<unk> 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 is leading indicators not only with triumph as a sub to your supplier, but also the Asian providers that the rates are coming up and I've been watching the space a long time.
Remember touring Boeing's plant with the Triple seven was initially rolled out the first all digital aircraft.
I've been through their plants.
When they did the 77, which really broke the mold on composites to new Sutton supply chain approaches.
And then the Max line I've been down many times, which is very automotive and its style. So they have the capacity to ramp up the line. Yes Park constraints are real bowling 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 and market demand.
Read about the orders for the use of the backlog is growing.
And the step ups on 787 from straightforward right five we were at 14 on that before.
And the and the demand for that platform is very high if we can get that back to 10 is bowling as advertised by 2025 2026 at the huge tailwind for trial, because we have a lot of content on the 787 so.
I agree it can't happen soon enough, but these sort of rates are achievable and we believe will happen in the next two years. So.
We lay out our multiyear forecast which is key.
Hitting getting back to like $2 billion in revenue.
Generating the kind of cash conversion that you all expect.
These rates make that possible.
Okay.
Can you can you estimate I know you explained it's different by <unk>.
<unk>, but can you estimate the enterprise wide.
Max Great that you're sending out of the company at this model.
So what are we take that as an action. We can we can address it offline and I don't want to do it.
But we know it by plan.
Because as I mentioned, six 6% to 24 plants support the Max.
We have interiors content actuation content <unk>.
Controls.
So.
Engineered boxes through GTE leave CFM.
So it's a 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 GE lead follow on contract.
Is it helped us support the volume and maintain pricing so it's okay.
It's a coming attraction for sure.
Okay.
So then to follow on all of that and your bridge on slide 14 and kind of to.
Sheila point about asking for the XL.
Dot net volume.
Liver looks pretty small relative.
Wild sex.
Why is that and could you could you also can say what that marlboros on that blue silver there.
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 free cash flow the aftermarket are actually more important.
The alien 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 backlog.
And you'll see a mix of military commercial now you'll see the three seven 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 backlog, there's a lot of broken ship.
Diversity of the mix here is why the exact rates if anyone program can be mitigated by right changes the other direction another program.
So it is a balanced growth across aftermarket leading at the break behind <unk> and no.
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, a lot.
Thank you.
And our last question will be a follow up from Michael ceremony with Trust. Please go ahead with your question.
Hey, guys. Thanks for taking the follow up I guess, just to kind of hone in on where nobody's going there but.
Particularly on the <unk> III 20 right.
In regards to what Airbus has said I know, they're dealing with some supply chain issues, but they are still targeting.
That kind of 60 65 by the end of 2475, so how do we think about that right 49 with that eight to 10 monthly John .
So I'm going to refer you to Airbus because I don't want to speak for them, but if you saw their month over month deliveries. They came up very quickly.
And the month and the March and so yeah. They are also working supply chain issues, but they are.
You have to look at.
Very timely data in order to.
Two.
Project the future revenues.
The future build rates from there.
Okay, Okay fair enough. Thanks, Scott.
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