Q2 2024 Triumph Group Inc Earnings Call

Speaker 1: The next consecutive quarter of year over year growth, as well as predictable profitability.

Year over year growth as well as predictable profitability.

Speaker 1: Our de-leveraging plan is on track, including over 60 million in debt reduction since the start of the fiscal year.

Our deleveraging plan is on track.

Including over $60 million in debt reduction since the start of the fiscal year.

Speaker 1: which will yield approximately 5 million in annualized interest savings.

Which will yield approximately $5 million in annualized interest savings.

Speaker 1: As I reflect on the quarter, I'm pleased with our ability to execute on our short-term performance targets.

As I reflect on the quarter I am pleased with our ability to execute on our short term performance targets.

Speaker 1: We remain very excited about the long-term financial and operational opportunities for FRIEL.

We remain very excited about the long term financial and operational opportunities for trials.

In particular, our performance serves as evidence that we continue to accelerate our future towards the targets we discussed at our September Investor Day.

Speaker 1: In particular, our performance serves as evidence that we continue to accelerate our future towards the targets we discussed at our September and Vester Day.

Speaker 1: Turning to slide three, I'll summarize the highlights for the quarter.

Turning to slide three I will summarize the highlights for the quarter.

Year over year organic sales growth was 16%.

Speaker 1: Your Rear Organic Wale, Fucked with 16%.

Speaker 1: proven by improving MRO demand, accelerated above Q1's 14% growth, and above our original guidance.

By improving MRO demand accelerated above Q1, 2014% growth.

And above our original guidance.

Speaker 1: Aftermarket sales increased year over year, accounting for a robust 43 percent of our Q2 sales, roughly double since the start of our restructuring.

Aftermarket sales increased year over year accounting for a robust 43% of our Q2 sales.

Roughly double since the start of our restructuring.

Recall, our interiors business started the year slow.

Speaker 1: With slower ramps and sales, supply chain delays, inflationary pressures, and unfavorable foreign exchange headwinds, the team began to execute.

With slower ramps in sales supply chain delays inflationary pressures and unfavorable foreign exchange headwinds.

The team began executing on our recovery plans.

Speaker 1: Nexidates September , a break even on increasing volumes and growing backlog.

And exited September at breakeven on increasing volumes and growing backlog.

And last we grew our total company backlog by 15% above market growth rates as try and benefit from strong representation across the broad array of platforms customers and end markets.

Speaker 1: And last we grew our total company backlog by 15% above market growth rates as triumph benefits from strong representation across the broad array of platforms, customers, and end markets.

We continue to benefit from growing commercial travel demand up 28% through August year over year.

Speaker 1: We continue to benefit from growing commercial travel demand of 28% through August year-over-year.

Speaker 1: and increased emorod demand, as aircraft returned from peak summer use.

And increased MRO demand as aircraft returned from peak summer use.

Speaker 1: Commercial transport aircraft new orders more than 2000 years of date and planned OEM rate step-ups. Book the-

Commercial transport aircraft, new orders more than 2000 year to date.

And planned OEM rate step ups.

Book to Bill is 137 year to date.

Speaker 1: And 1.8 billion of reportable backlog is up 16% year-over-year. Even as past due backlog has been driven down by 17 million for about 18% this fiscal year today.

And $1 8 billion of reportable backlog is up 16% year over year, even as past due backlog has been driven down by $17 million or about 18% this fiscal year to date.

Speaker 1: In the military market, there is robust US defense budget in place.

In the military market there is a robust U S defense budget in place.

Speaker 1: and expectations for it to remain at similar levels for the next few years.

And expectations for it to remain at similar levels for the next few years.

Speaker 1: Given multiple regional conflicts, budgets are likely to grow up beyond current forecast.

Given multiple regional conflicts budgets are likely to grow beyond current forecasts.

Speaker 1: France is currently engaged in an unprecedented number of military OEM opportunities, including over 30 classified or

<unk> is currently engaged in an unprecedented number of military OEM opportunities.

Including over 30 classified rfps year to date.

Speaker 1: We are in discussions on hydraulic systems, fuel pumps, landing gear systems, thermal systems, gearboxes, door actuation, and more, all driven by expanding triumph.

We are in discussions on hydraulic systems fuel pumps landing gear systems thermal systems gearboxes door actuation and more.

All driven by expanding <unk> intellectual property.

In Q2 tribes commercial OEM shipments were up 17% year over year.

Speaker 1: In Q2, Triumph's commercial OEM shipments were up 70% year over year.

Speaker 1: While commercial aftermarket revenues rose 48% your view.

While commercial aftermarket revenues rose, 48% year over year.

Military OEM sales were consistent with prior year, while military MRO rose, 24% year over year on the strength of many programs led.

Speaker 1: Military OEM sales were consistent with prior year, while military MRO rose 24% year over year on the strength of many programs, led by V-22 pylon conversion.

Led by V 22, pylon conversion actuators.

Speaker 1: As we shared at a recent Investor Day, Triumph enjoys significant content on Boeing 787 aircraft with just over 1 million in ship set value, benefiting both the OEM and MRO sales across six Triumph factories.

As we shared at our recent Investor day.

<unk> enjoys significant content on Boeing 787, aircrafts with just over $1 million chipset value bent.

Benefiting both the OEM and MRO sales across six try and factories.

Speaker 1: This is a great aircraft with more than 1800 orders since 2013 and a backlog of nearly 800 aircraft, 235 of which were ordered in 2023.

This is a great aircraft with more than 800 orders since 2013, and a backlog of nearly 800 aircraft 235 of which were ordered in 2023.

Speaker 1: So demand is robust and Boeing is working to increase rate as rapidly as possible.

So demand is robust.

Boeing is working to increase rate as rapidly as possible.

Speaker 1: Orders in our portal support the move to rate 5.3 per month in our fiscal year, up nearly two times from the start of our year, and 787 shipments for the second quarter were up 142%.

Orders in our portal support the move to rate five three per month in our fiscal year.

Up nearly two times from the start of our year end.

787 shipments for the second quarter were up 142%.

Speaker 1: We also anticipate emerging sustainment requirements for the 787 as the oldest aircraft in this fleet are just beginning to exceed 10 years in service.

We also anticipate emerging sustainment requirements for the 787 as the oldest aircraft in this fleet are just beginning to exceed 10 years in service.

Speaker 1: As these aircraft enter their landing gear maintenance cycle, Triumph will begin overhauling increasing numbers of our landing gear actuation components, including extend and retract actuation, truck positioning, nose wheel steering, and door actuation.

As these aircrafts enter their landing gear maintenance cycle trough.

<unk> will begin overhauling, increasing numbers of our landing gear actuation components, including extended retract actuation truck positioning nose wheel steering and door actuation.

Speaker 1: New wins for the quarter included CH-47 engine controls.

New wins for the quarter included CH 47 engine controls.

Our UA 60 gear package and an accessory repair package for Atlas Air.

Speaker 1: a UH-60 gear package and an accessory repair package for Atlas Air.

Speaker 1: as well as personal service units, crew seats, and starters for Delta Airlines.

As well as personal service units cruise seats and starters for Delta Airlines.

While only 10% of our sales performance at our interiors business remains a focus area.

Speaker 1: While only 10% of our sales, performance at our interiors business remains the focus area.

Speaker 1: As an unfavorable sales mix driven by OEM delays.

As an unfavorable sales mix driven by OEM delays.

Speaker 1: and supplier shortages, along with margin impacts from inflationary pressures on materials and labor and foreign exchange changes, creating

And supplier shortages, along with margin impacts from inflationary pressures on materials labor.

And foreign exchange changes created headwinds to start the fiscal year.

We're running additional triumph operating system lean events to offset these external headwinds and we're starting to see positive developments. These.

Speaker 1: We're running additional triumph operating system lean events to offset these external headwinds, and we're starting to see positive development.

Speaker 1: These include events to drive down cycle time and improve efficiencies and productivity.

These include events drive down cycle time, and improve efficiencies and productivity.

As production demand increases we are working closely with our customers to derisk the supply chain by securing alternate sources where necessary.

Speaker 1: Production demand increases. We are working closely with our customers to de-risk the supply chain by securing alternate sources where necessary to keep cost competitive.

To keep cost competitive.

And two in sourcing more work as rates continue to ramp.

Which will provide added absorption benefits.

Speaker 1: Interior is on a path to recover to mid to high single digit margins this fiscal year.

Interiors is on a path to recover to mid to high single digit margins this fiscal year.

Speaker 1: and to enhance the confidence in their long-term earnings target.

And to enhance the confidence in their long term earnings targets.

Value pricing remains a key strategy that trying to deploying towards our margin expansion goals.

Speaker 1: Value pricing remains a key strategy that triumphs in deploying towards our margin expansion goals.

Speaker 1: This includes the implementation of our expanded commercial playbook, expanding our commercial wrist reviews.

This includes the implementation of our expanded commercial playbook.

Expanding our commercial risk reviews and.

And implementing new processes.

Given the evolving market environment.

Speaker 1: Given the evolving market environment, this has included exploring shorter duration supplier and customer contracts.

This has included exploring shorter duration supplier and customer contracts incur.

Speaker 1: Incorporating inflation clauses tied to indices or specific material pass through clauses.

Incorporating inflation clauses tied to indices are specific material pass through clauses.

And focusing on aftermarket premiums and market access.

Speaker 1: and focusing on aftermarket premiums and market access.

Previously, we highlighted that 80% of our contracts have terms of six years or less.

Speaker 1: Previously, we highlighted that 80% of our contracts have terms of six years or less.

Speaker 1: providing a near constant flow of opportunities to optimize value based on our technical solutions, capabilities, and IP. And our recent wins include examples of these efforts.

Providing a near constant flow of opportunities to optimize value.

Based on our technical solutions capabilities and IP.

Our recent wins include examples of these efforts.

Speaker 1: We remain on track with the pricing objectives laid out during the recent investor day.

We remain on track with our pricing objectives laid out during the recent investor day.

Jim will now take us through our second quarter results and updated outlook for fiscal 2020 for Jim.

Speaker 1: Jim will now take us through our 2nd quarter results and updated outlook for fiscal 2024. Jim, thanks and good morning. Everyone.

Thanks, Dan and good morning, everyone.

Speaker 1: Triumph Second Quarter Results exceed our expectations with significant revenue growth over the prior year period. One slide five of the Consolidate Results for the Quarter. Revenue...

<unk> second quarter results exceeded our expectations with significant revenue growth over the prior year period.

On slide five of the consolidated results for the quarter.

Revenue was $354 million.

With the continuing business, excluding divestitures and exited programs organic revenue increased 16% over the prior year quarter.

Speaker 1: With the continuing business, excluding divestitures and exited programs, organic revenue increased 16% over the prior year quarter.

Speaker 1: Organic revenue growth primarily benefited from increased aftermarket volumes and pricing on our largest program.

Organic revenue growth, primarily benefited from increased aftermarket volume and pricing on our largest programs.

Speaker 1: I'll demand across most of our end markets and proofs are in the quarter on a year-over-year base.

While demand across most of our end markets improved during the quarter on a year over year basis.

Prior year revenues included $16 million nonrecurring benefit from the sale of non core IP absent, which revenue growth would be 23%.

Speaker 1: Are your revenues included $16 million non-recurring benefits from the sale of non-4IP, absent which revenue growth would be 23%. Adjusted operating income from-

Adjusted operating income for the quarter was $37 million.

Speaker 1: Representing 11% margin, a 60 basis point increase over last.

Representing 11% margin, a 60 basis point increase over last year.

Speaker 1: and just to be back for the quarter was forty six million dollars. 13% of that margin which is on track to our full year.

And adjusted EBITDA for the quarter was $46 million.

Representing a 13% EBITDA margin, which is on track to our full year guidance.

Speaker 1: sequentially, adjusted operating margin was up 300 basis points.

Sequentially adjusted operating margin was up 300 basis points.

Speaker 1: The adjust to the E-Bad Margin was up 220 basis points over Q1.

Adjusted EBITDA margin was up 220 basis points over Q1.

Speaker 1: driven by higher revenue and a favorable mix with an increase in aftermarket sales from 41 to 43% of several revenues.

Driven by higher revenue and a favorable mix with an increase in aftermarket sales from 41% to 43% of total revenue.

Speaker 1: In the quarter, we incur $1.9 million of restructuring costs to retire our last structures IT contract as our transition services agreement ended.

In the quarter, we incurred $1 $9 million of restructuring costs to retire last structures. It contract as our transition services agreement ended.

Speaker 1: And a $1.3 million charge associated with potential environmental cost at legacy structures.

And a $1 $3 million charge associated with potential environmental costs at legacy structure site.

Slide six shows our military revenue.

Speaker 1: Slide 6 shows our military revenue. For the quarter, military revenue was $117 million, representing 33% of total revenue.

For the quarter military revenue was $117 million.

Representing 33% of total revenue.

Military OEM sales were strong and on par with last year as increased sales on CH 50, <unk> and V 22, offset expected lower sales on <unk> and <unk> hundred 64 programs.

Speaker 1: Military OEM sails were strong and on par with last year. As increased sales on CH53K and V22, offset expected lower sales on E2D and AH64 per.

Speaker 1: Military aftermarket sales in the quarter were up 24% compared to last year and up 17% sequentially on increased demand for spares and repairs.

Military aftermarket sales in the quarter were up 24% compared to last year and up 17% sequentially on increased demand for spares and repairs.

Slide seven shows our commercial market revenue.

Speaker 1: For the quarter, commercial revenue was $227 million, representing 64% of total revenue. Commercial OEMs.

For the quarter commercial revenue was $227 million.

Representing 64% of total revenue.

Commercial OEM sales were $131 million.

Speaker 1: An absence of the sale of non-core IP, we're of 17% in the continuing business.

And absent the sale of noncore IP were up 17% in the continuing business.

Speaker 1: This growth was driven by increases in both volume and price and key programs, including Boeing 787 and 737 program.

This growth was driven by increases in both volume and price and key programs, including Boeing 787, and 737 programs.

Speaker 1: Commercial aftermarket sales in $96 million, from 49% in the continuing business on strong demands for commercial aftermarket spares and repairs.

Commercial aftermarket sales of $96 million grew 49% in the continuing business on strong demand for commercial aftermarket spares and repairs.

Speaker 1: This is our highest quarterly commercial aftermarket sales since fiscal 2017.

Our highest quarterly commercial aftermarket sales since fiscal 2017.

Speaker 1: Remaining 3% of our revenue is non aviation, which is profitable represents about 9M dollars of sales in the quarter. It's up 24% over last year.

The remaining 3% of our revenue is non aviation, which is profitable represents about $9 million of sales in the quarter.

24% over last year.

Speaker 1: Our continuing sales mix trend towards more aftermarket is having a positive impact on margins and cash flow. As Dan mentioned, total aftermarket sales represented 43% of our quarterly revenue. This was up from 36% in the prior year quarter.

Our continuing sales mix trend towards more aftermarket is having a positive impact on margins and cash flow as Dan mentioned total aftermarket sales represented 43% of our quarterly revenue. This was up from 36% in the prior year quarter.

Speaker 1: The breakdown of our aftermarket sales and MRO capabilities is on slide 8.

The breakdown of our aftermarket sales and MRO capabilities is on slide eight.

Our free cash flow walk is on slide nine.

Speaker 1: Our free cash flow walk is on slide nine, which shows our Q2 and year-to-date cash.

Which shows our Q2 and year to date cash use.

Speaker 1: or $37 million of cash use this quarter, included $74 million in semi-annual interest payments.

Our 37 million of cash use this quarter included $74 million in semiannual interest payments.

Speaker 1: As well as plan investment in our networking capital in support of increasing second half sales on.

As well as planned investments in our networking capital in support of increasing second half sales volume.

Speaker 1: This is consistent with our expectations and the quarterly free cash flow guidance we previously gave.

This is consistent with our expectations and the quarterly free cash flow guidance. We previously gave.

Speaker 1: We expect to be solidly cash positive in Q3 and in Q4 in support of full year cash flow guidance, which is up to $40 to $55 million.

We expect to be solidly cash positive in Q3 and Q4 in support of our full year cash flow guidance, which is up to $40 to $55 million.

On slide 10 is our net debt liquidity.

As of September 30, we had $1 5 billion of net debt and our cash availability was approximately $230 million.

Speaker 1: As of September 30th, we had $1.5 billion of net debt and our cash availability was approximately $230 million.

Speaker 1: During the second quarter, we purchased $19 million of our unsecured 7.75% senior notes due in August of 25.

During the second quarter, we purchased $19 million of our unsecured 775% senior notes due in August of 25.

Speaker 1: And we purchased an additional twenty nine million dollars so far in the third quarter to purchase these notes at a discount.

And we purchased an additional $29 million so far in the third quarter.

Repurchase these notes at a discount to par resulting in gains.

Speaker 1: When combined with the $14 million in bond redemptions in the first quarter, we've reduced annualized interest expense.

When combined with the $40 million in bond redemptions in the first quarter.

We've reduced annualized interest expense by about $5 million.

Speaker 2: We also have over $300 million of deferred tax assets that contain a great value to reduce cash taxes moving forward.

We also have over $300 million deferred tax assets to continue to create value through reduced cash taxes moving forward.

Our fiscal 'twenty four guidance begins on slide 11.

Speaker 2: We are increasing our fiscal 24 guidance for revenue adjusted EBITDA and cash flow and updating our operating income guidance.

We are increasing our fiscal 'twenty guidance for revenue adjusted EBITDA and cash flow and updating our operating income guidance.

Speaker 2: Based on anticipated aircraft production rates, we expect organic growth of 10 to 13% in fiscal 24. With revenue in the range of 1.43 billion to 1.47 billion dollars.

Based on anticipated aircraft production rates, we expect organic growth of 10% to 13% in fiscal 'twenty four with.

With revenue in the range of $1 43 billion to $1 47 billion.

Aftermarket volume is the largest component of the increase followed by OEM volume pricing and an increase in non aviation revenue.

Speaker 2: Aftermarket volume is the largest component of the increase, followed by OEM volume, pricing, and an increase in non-aviation revenue.

Speaker 2: The aftermarket is expected to grow at an 11% rate for the fiscal year.

The aftermarket is expected to grow at an 11% rate for the fiscal year.

Commercial OEM revenue growth is driven by production ramps on Boeing 737, and 707 programs and the Airbus <unk> hundred 20 family.

Speaker 2: Commercial OEM revenue growth is driven by production ramps on Boeing 737 and 787 programs and the Airbus A320 family, even while supply chain and gear turbofan repairs are considered.

Even while supply chain and geared turbofan repairs are considered.

Non aviation sales are expected to increase driven by the previously announced work supporting Alistair Sustainment.

Speaker 2: Non-evasion sails are expected to increase, driven by the previously announced work supporting howitzer sustainment.

Speaker 2: We increased our adjusted EBITDA guidance consistent with the increased sales guidance to a range of $216 million to $231 million.

We increased our adjusted EBITDA guidance consistent with the increased sales guidance to a range of $216 million to $231 million.

Speaker 2: or just an EBITDAM margin guidance, continues to indicate up to a 16% to consolidate EBITDAM margin at fiscal 24. Representing roughly 200 basis point improvement over less.

Our adjusted EBITDA margin guidance continues to indicate up to 16% consolidated EBITDA margin in fiscal 'twenty, four representing roughly a 200 basis point improvement over last year.

We increased our cash flow from operations and free cash flow guidance ranges by <unk> 5 million for fiscal 'twenty for <unk>.

Speaker 2: We increased our cash flow from operations and free cash flow guidance ranges by 5 million for fiscal 24, including 2nd, half working capital improvement.

<unk> second half working capital improvements.

We continue to expect solid cash generation in Q3, and strong cash generation in Q4, consistent with prior year seasonality.

Speaker 2: Continue to expect solid cash generation in Q3 and strong cash generation in Q4, consistent with prior year seasonality.

Speaker 2: This is driven by working capital liquidation on the second half sales surge, reduction in past due backlog and increased OEM inventory returns.

This was driven by working capital liquidation in the second half sales surge reduction in past due backlog and increased OEM inventory turns.

Speaker 2: Interest expenses expect to be 151 million dollars, including 145 million dollars of cash interest and we expect.

Interest expense is expected to be $151 million, including $145 million of cash interest.

And we expect $7 million of cash taxes.

Speaker 2: This is after the cash interest savings from $49 million of bond purchases completed to date.

This is after the cash interest savings from $49 million of bond purchases completed to date.

Organic margin expansion cash generation and debt reduction are expected to drive our net leverage from seven six times at the end of last year to between six one and six three times at the end of this fiscal year.

Speaker 2: Organic margin expansion, cash generation, and debt reduction are expected to drive our net leverage from 7.6 times at the end of last year to between 6.1 and 6.3 times at the end of this fiscal year.

Speaker 2: As we discussed at our investor day, we're on a path to reduce leverage into the range of three and a half times no later than the end of fiscal twenty six expansion and free cash flow generation.

As we discussed at our Investor day.

We're on a path to reduce leverage into the range of three five times no later than the end of fiscal 'twenty six through EBITDA expansion and free cash flow generation.

Speaker 2: However, TRIUMPH continues to explore alternatives to accelerate the leveraging through business and product line portfolio actions.

However, traffic continues to explore alternatives to accelerate deleveraging through business and product lines portfolio actions.

Speaker 2: In summary, the second quarter's results are in line with or ahead of our expectations and support the increased full-year guidance.

In summary, the second quarter's results were in line with or ahead of our expectations and support the increased full year guidance.

Speaker 2: We're reducing debt and interest expense by purchasing bonds in the market, growing EBITDA, and generating free cash flow this year.

We're reducing debt and interest expense by purchasing bonds in the market growing EBITDA and generating free cash flow this year.

Speaker 2: We're executing a multi-year plan to continue to grow revenue, margins, and free cash flow, reduce leverage, and increase shareholder value.

We're executing a multiyear plan to continue to grow revenue margins and free cash flow reduce leverage and increase shareholder value.

We remain on track to achieving the targets established at our Investor Day in September.

Speaker 2: Remain on track to achieving the targets established on our investor day in September . Now turn the call back.

Now I'll turn the call back to Dan Dan.

Speaker 1: Thanks, Jim. Transperformance in the second quarter of fiscal 24 highlights the strength of the new triumph, the stronger systems and aftermarket driven company with a growing IP portfolio and backlog yielding steadily improving financial results year over year.

Thanks, Jim.

<unk> performance in the second quarter of fiscal 'twenty four highlights the strength of the new triumph.

A stronger systems and aftermarket driven company with a growing IP portfolio and backlog, yielding steadily improving financial results year over year.

Speaker 1: We expect improved financial and operational performance to continue throughout the fiscal year as our expanding mix of aftermarket and IP driven OEM sales gives us confidence in our updated fiscal 2024 guidance and long term outlook. Jim and I are happy now to.

We expect improved financial and operational performance to continue throughout the fiscal year.

As our expanding mix of aftermarket and IP driven OEM sales gives us confidence in our updated fiscal 2020 for guidance and long term outlook.

Jim and I are happy now to take any questions you have.

Speaker 3: Thank you. If you would like to ask a question, please press star then 1 on your telethon keypad.

Thank you.

I'd like to ask a question. Please press Star then one on your telephone keypad.

Speaker 3: If your question has been addressed and you'd like to remove yourself from queue, please press star then 2. Once again, ladies and gentlemen, that's star then 1 if you have a question.

If your question has been addressed and like to remove yourself from Q.

Please press Star then two.

Once again, ladies and gentlemen that Star then one if you have a question.

Today's first question comes from Seth <unk> with Jpmorgan. Please go ahead.

Speaker 3: Today's first question comes from Seth Seifman with J.P. Morgan. Please go ahead.

Oh, thanks, very much good morning.

Speaker 4: Thanks very much. Good morning and good results. I wanted to ask, in terms of the, you know, the improvement in the overall outlook, was there any change to the outlook for the structures business? Or sorry, the interiors business now? I guess in other words, should we think that interiors, maybe there are some more challenges there and that was more than offset by the goodness that you see in S&S.

Good morning, good results.

I wanted to ask in terms of.

The improvement in the overall outlook.

Was there any change to the outlook for the structures business or sorry, the interiors business down I guess in other words should we think that interiors, maybe there are some more challenges there and that was more than offset.

By the goodness that you see.

And SNS.

Yes, that's how I see it Seth we had a.

Speaker 1: Yeah, that's how I see it. We had a, you know, printed 13% in the quarter, despite being break even and interiors. And let me characterize interiors revenue profile for the year. They started the first quarter of the year with a monthly sales of 10 to 11.

Printed 13% in the quarter despite being breakeven.

Interiors, let me characterize interiors revenue profile for the year. They started the first quarter of the year with a monthly sales of 10 to 11.

Speaker 1: In the second quarter, that went to 10 to 12. For Q3, we're looking at 11 to 14 million per month. And then in Q4, 15 to 19. So very strong second half sales. We also jumped on it with a return to green program to drive productivity. We saw about 10% improvement in productivity through the months of September and October .

In the second quarter that went to 10 to 12 for Q3, we're looking at $11 million to $14 million per month, and then in Q4, 15% to 19, so very strong second half sales. We also jumped on it with a return to green program to drive productivity.

We saw about 10% improvement in productivity through the months of September and October.

Speaker 1: And these are really two well-run plants in Mexico.

And these are really two well run plants in Mexico.

The challenges have been external.

Speaker 1: both foreign exchange and input costs, and we're addressing both.

Both foreign exchange and input cost and we're addressing both on.

Speaker 1: On the input cost, we're competing the suppliers that have raised prices so that we have alternatives.

On the input cost were competing the suppliers that have raised prices. So that we have alternatives and a.

Speaker 1: And on foreign exchange, I'll let Jim address what we're doing there. Just to break down interiors a little bit further, it's really three businesses within one business, even though it's only 10% of sales.

On foreign exchange I'll, let Jim address what we're doing there just to break down and Terry is a little bit further it's really three businesses within one business, even though it's only 10% of sales.

Speaker 1: is a small contributor to Triumph overall. The insulation piece, which is the biggest piece.

It's a small contributor to try and overall the installation piece, which is the biggest piece is.

Speaker 1: is a 20% plus margin business.

<unk> is a 20% margin this plus margin business and cabin production parts that we've made to support the cabin is sort of high single digits, where we've been losing money as in composites, which is mostly ducting. So we're taking some actions to automate that plant.

Speaker 1: And cabin production parts that we make that support the cabin is sort of high single digits where we've been losing monies and composites, which is mostly ducting. So we're taking some actions to automate that plant.

Speaker 1: We just opened a new clean room there and we're doing additional lean events to drive that. But overall the plants are quite well run. It's just dealing with these external headwinds. But yes, we have a strong second half that we are counting on to be part of the overall trajectory of the company on both sales cash and profit.

Just opened a new clean room, there and we're doing additional lean events to drive that but overall the plants are quite well Ron is just dealing with these external headwinds, but yes, we have a strong second half that we.

We are counting on to be part of the overall trajectory of the company on both the sales cash and profit Jim.

Speaker 2: Yeah, and their external drivers like inflation and FX are challenges and they don't wax and wane, but reality is we have to get our costs down and then we have to exercise a right to the contracts for adjustments where we have them. And then where we don't, we have to go negotiate when new contracts come up adjusted prices to cover those costs.

Yes.

External drivers like inflation and FX our challenges.

<unk> and Wayne, but reality is we have to get our costs down and then we have to exercise our rights under the contracts for adjustments, where we have them and then where we don't we have to go negotiate when new contracts come up adjusted prices to cover those costs.

Speaker 2: But the team is very active on remediating the challenges there. But I think you're exactly right that the system's strength, which is so important, is more than offsetting the interior challenge.

But the team is very active on remediated the challenges there.

But I think you're exactly right that the system's strength, which is so important is more than offsetting the interiors challenges.

Speaker 4: Okay, okay, great. And then maybe just one follow up, if that's okay. You know, if we think about the military OEM business, and just, you know, maybe because on the OEM side, you think maybe there's a little more visibility in terms of the content you have, and the expected build rates for the platforms, you know, it seems like maybe this year can be up a little from last year, which is,

Okay, Okay, Great and then maybe just one follow up.

Okay.

If we think about the <unk>.

In military.

OEM business and just maybe on the OEM side do you think maybe theres a little more visibility in terms of the content you have and the expected build rates for the platforms.

It seems like maybe this year it can be up a little from last year, which is.

Speaker 4: you know, $260 to $270 million of sales on the military OEM side. How does that evolve going forward and where are the drivers? Because I know there's probably some legacy rotorcraft that you're on and, you know, but also some growth opportunities. So how does that piece of the business evolve?

2016 at $270 million.

And the military OEM side.

How does that evolve going forward on where the drivers I know, there's probably some legacy rotorcraft that you're on and.

But also some some growth opportunities so how does that piece of the business evolves.

Speaker 1: Yeah, we, we really do have a strong presence in helicopter, especially out of our West Hartford fuel controls controls business and thermal products, but also gearboxes and.

Yes, we really do have a strong presence in helicopter, especially out of our west Hartford fuel controls controls business.

And thermal products, but also gearboxes and.

Speaker 1: heat exchangers. So, you know, when you look at the rates, we just got the award for the LRIP 7 and 8 lot for CH-53 from Sikorsky, that's a program that's been building at about 0.8 aircraft per month, and it's ramping up to over the next three years to double that.

Heat exchangers so.

When you look at the rates, we just got the award for the <unk> seven and eight lot for CH 53 from Sikorsky. That's a program that's been building at about <unk>.

Eight aircraft per month, and it's ramping up to over the next three years to double that so.

Speaker 1: so that's a nice tailwind for us. MH-60 is also growing in rate modestly. We do a lot of gears for the AH-64 Apache, and that rate goes up about 10%, maybe 15% over the forecast.

So that's a nice tailwind for us.

<unk> is also growing in rate modestly.

We do a lot of gears for the H 60 for Apache.

And that rate goes up about 10%, maybe 15% over the forecast so.

Speaker 1: You know, while it's not a doubling sort of build rate increase, unlike last year where we were marking down OEM rates, we're finally swinging into positive. And I'm very encouraged about the new starts on military. We're getting pulled into lots of bids, you know, FARA, FLARA on the helicopter side are two examples, but also on the next gen fighters as well. So we see our competency in helicopter components being a strength for the company.

Well, it's not a doubling sort of build rate increase unlike last year, where we were marking down OEM rates were finally swinging into positive and I'm very encouraged about the new starts on military we're getting pulled into lots of bids far of Florida on the helicopter side are two examples but also on the nextgen.

<unk> fighters as well so we see our competency in helicopter components being strengths of the company.

Yes.

Speaker 2: Yeah, I would also point you to page 14, so we have the backlog there by program and I'll give you more flavor over what's in the next 2 years and the military programs there from F35, which is 2% of backlog right now up to C53 is 8% of backlog.

Point you to page 14, so we have the backlog, thereby program that will give you more flavor over what's in the next two years and the military programs. There from F 35, which is 2% of backlog right now of the CH 53, 8% of backlog.

Speaker 2: and half of those programs are rising in rate. Half of them may be reducing a rate for some stable ones, but it's a good balance portfolio of military and work.

And hence those programs are rising and half of them may be reducing in rate or some stable ones, but its a good balanced portfolio of military OEM work.

Great. Thank you very much.

Yes.

Speaker 3: Thank you and our next question today comes from Ellen Page at Jeffries. Please go ahead.

Thank you and our next question today comes from Alan at Jefferies. Please go ahead.

Hi, Thanks for the question.

Speaker 5: Just going back to interiors, you had called out FX as a headwind and it was a headwind in 2-1 as well. How much of the loss?

Just going back to <unk> carriers.

You had called out FX as a headwind and it was a headwind in Q1 is wow, how much of the loss was due to the peso and how do we think about reaching the mid to high single digits and this claim count.

Speaker 5: And how do we think about reaching to high single digits in fiscal age, too?

Thank you Sir.

Speaker 2: Sure. Thanks, Ellen. Roughly estimated about 500,000 per month would be peso at the current rate. As you know, the peso strengthens to some all-time highs against the dollar. But that will change over time, and we'll have the opportunity to reprice and address cost structure to help mitigate that.

Sure. Thanks, Ellen Ruff less made about 500000 per month will be peso at the current rates.

The peso strengthened.

Some all time highs against the dollar, but that will change over time, and what the opportunities to reprice and address cost structure to help mitigate that.

So thats the piece Thats FX related.

But Dan talked about some of the actions, we're taking which youre going to.

Speaker 2: But then talked about some of the actions we're taking, which are going to increase the 2nd half. I think volume is 1 of the biggest drivers. It's really expecting a lot more volume. The 2nd half, the mix changing back towards installation, which is more profitable than the ducting is. And some of the cost mitigation.

Increased <unk>.

Second half I think volume is one of the biggest drivers so really expecting a lot more volume in the second half the mix changing back towards installation, which is more profitable than the ducting is.

And some of the cost mitigation actions, we're taking as well.

Thank you.

Speaker 5: Can we just go over the moving pieces to the free cash flow guide? You raised OCF by $5 million, I believe. What were the key drivers there?

Can we just go over some of the pieces to the free cash flow guide you raised.

$5 million.

Please.

The key drivers there.

The key driver is really the the <unk>.

Speaker 2: The key driver is really the sales, which is driving profitability, partially offset by the increased working capital needed to supply the higher sales.

Sales, which is driving profitability.

Partially offset by the increased working capital needed to supply the higher sales in the second half of the year.

Speaker 2: So it's a modest increase, but it's an important one, and it's consistent with those higher sales.

So there is a modest increase but it's an important one and it's consistent with those higher sales.

What we've been watching very closely in fact at the board level.

Speaker 1: What we've been watching very closely, in fact, at the board level, is the reduction of past-due backlog and working capital, because there's been multiple currents within the working capital flow. We've been investing in working capital for the rotables, for MRO, that's helped us drive our strong MRO sales, and then also protecting OEM ramps by buying more, but at the same time we want to increase turns.

Is the reduction of past due backlog and working capital because theres been multiple currency within the working capital flow.

We've been investing in working capital for the <unk> for MRO, that's helped US drive our strong MRO sales and then also protecting OEM ramps by buying more but at the same time, we want to increase turns.

Speaker 1: on the MRO or on the OEM side. So what we saw in September , October , were improvements in both measures.

On the MRO or on the OEM side, so what we saw in.

September October.

Our improvements in both measures.

Speaker 1: both the past due burndown and the OEM turns. So that's the leading indicator we need to see to have confidence that we're gonna improve working capital in the second half of the year.

Both the past due burned down and the OEM.

OEM turns so thats it.

The leading indicator we need to see to have confidence that we're going to improve working capital in the second half of the year.

Great Thanks for that.

Okay.

Thanks Alan.

Speaker 3: Thank you. And our next question today comes from David Strauss with Barclays. Please go ahead.

Thank you and our next question today comes from David Strauss with Barclays. Please go ahead.

Thanks, Good morning.

Good morning.

Speaker 6: On interiors, would you expect it to get to EBIT or EBITDA positive in Q3?

On the on interiors.

And when you expect it to get to evade or EBITDA positive in Q3.

So we're exiting breakeven.

Speaker 2: So, we're exiting break even in September . So, yes, we expect to be.

In September so, yes, we expect to be.

Speaker 2: break even to positive in Q3 and strong, solidly positive in Q4 to get back to the mid to high single digits for the year.

Breakeven to positive in Q3 and strong solidly positive in Q4 to get back to the mid to high single digits for the year.

Okay.

Speaker 6: And, uh, Jim, I'm pretty casual. I think, you know, if I go back to the, the bar chart that you had in, in the, in the Q4 slide deck, it looks like Q2 was a little bit weaker than what you were anticipating there by just compare it to prior years. If so, what, what was.

And Jim on free cash so I think if I go back to the <unk>.

Bar chart that you had in <unk>.

And the Q4 slide deck it looks like.

Q2 was a little bit weaker than Liguria, anticipating there by just compared to prior years.

If so what was <unk>.

Speaker 6: You know, kind of where was the myth relative to your internal plan on cash flow and, um, you know, that bar chart implied a pretty big. You 3 free cash flow number. Um, I know you said positive, but I, I just wanted to see if we could revisit kind of the, uh, uh, the sequential growth and precast. So you're expecting Q3 and Q4.

Where was the miss relative to your internal plan on cash flow and that.

That bar chart implied a pretty big Q3 free cash flow number I know you said positive, but I just wanted to see if we could revisit kind of the.

The sequential growth in free cash flow, you're expecting Q3 and Q4.

Speaker 2: Sure. At the end of the fiscal year we reported, we put out the chart with the cash flow cadence for the four quarters that you're referring to. But actually after Q1, I updated that and I said 30 to 40 million cash use if you look at the transcript for Q1. And at the investor day, I reiterated that. And the real driver for slightly higher cash use was the higher sales.

Sure.

In Q at the end of the fiscal year, we reported we put out this chart with the cash flow cadence for the four quarters that you're referring to but actually after Q1, I updated that and I said $30 million to $40 million cash use.

The transcript for Q1 and at the Investor Day, I reiterated that in the real driver for slightly higher cash use was the higher sales were seeing there was some impact from supply chain.

Speaker 2: You know, there was some impact from supply chain and from demand changes, but.

Demand changes, but.

Speaker 2: It was really the higher sales for the second half. So 30 to 40 use, I guess we came in at 37 use this past quarter.

It was really the higher sales for the second half. So 30 to 40 useful I guess, we came in at 37 use this past quarter and we should be positive in that range for Q3, and the $30 million to $40 million cash positive and then the balance to get to our full year guidance would be in Q4. So a very strong Q4 as we've had in prior years.

Speaker 2: And we should be positive in that range for Q3 in the 30 or 40 million cash positive. And then the balance to get to our full year guidance would be in Q4. So very strong Q4, as we've had in prior years, but with this higher after market percentage at 43%, we see even more seasonality and with the ramping production rate.

But with this higher aftermarket percentage at 43% with even more seasonality and with the ramping production rates I think we're going to have a stronger Q4 than we've ever had before and taken together year over year swing of about $120 million to $130 million in cash flow for the full year. So we.

Speaker 1: I think we're gonna have a stronger Q4 than we've ever had before. Yeah, and taken together year over year, it's a swing of about 120 to 130 million in cash flow for the full year. So we feel very good about the trajectory on cash.

We feel very good about subjected to trajectory on cash.

Okay, that's helpful and Jim.

Speaker 6: Okay, that's helpful. And Jim, just the net working capital that you're assuming now for the full year, how much of the use are you anticipating?

Just the net working capital that you are assuming now for the for the full year how much of the use are you anticipating.

I don't have it broken out that level, it's obviously going to be.

Speaker 2: You know, I don't have a broken out that level. It's obviously going to be.

Speaker 2: Coming down the 2nd, half of the year, and I have to follow up on that and look forward to give you more information about that moving forward. The absolute working capital level. I can tell you that we are driving turns.

Coming down in the second half of the year and I have to follow up on that and look forward to give any more information about that moving forward. The absolute working capital level I can tell you that we are driving turns down and we have a <unk>.

Speaker 2: We have a concerted effort on inventory management to get the turns down to improve the working capital movement forward. And it's the right time to do it with ramping sales because we have lots of inventory and we have lots of opportunities to be more efficient with it. We're trying to find the right home for inventories working with vendors and customers who may have lower costs of capital than us for vendor management, inventory customer owned inventory.

<unk> effort on inventory management to get the turns down to improve the working capital moving forward and.

And it's the right time to do it with ramping sales because.

We have lots of inventory and we have lots of opportunities to be more efficient with it we're trying to find the right home for inventories working with vendors and customers, who may have lower cost of capital than us.

For vendor managed inventory customer owned inventory.

Speaker 2: So, the direction is positive and we're going to be liquidating working capital second half of the year.

So the direction is positive and we're going to be liquidating working capital second half of the year.

Yes.

Alright, thanks very much.

Thanks, Dan.

Speaker 7: Thank you. And our next question comes from Kaivon Rumer with TD Collins. Please go ahead. Yes, thank you very much and impressive results.

Thank you and our next question comes from Cai von rumor with PD Colin. Please go ahead.

Yes, thank you very much and.

Impressive results.

Speaker 7: So your aftermarket business was strong in the second quarter and it's very good sequential gain. Based on what you said about the year, it looks like the rate of growth in aftermarket sales will be much more modest in the third and fourth quarter. Could you give us some color on what you expect commercial and military aftermarket to do sequentially in the third and fourth? And if that's the case, which it looks to be...

So your aftermarket business was strong in the second quarter in a very good sequential gain based on what you said about the year. It looks like the rate of growth in aftermarket sales will be much more modest in the third and fourth quarter could you give us some color on what you expect commercial and military aftermarket to do.

Really in the third and fourth.

And if that's the case, which it looks to be.

Speaker 7: the mix would look like it would be a little bit leaner and yet you know your adjusted EBITDA numbers seem to assume very good margin improvement sequentially with a mix shifting toward more OE. Help us understand that if you could.

The mix would look like it would be a little bit leaner and yet youre adjusted EBITDA numbers seem to assume very good margin improvement sequentially with the mix shifting towards more OE help us understand that if he could.

Yes, certainly the commercial aftermarket is the strongest driver of the growth we've seen outperformance year to date, and we expect that the casinos second half the visibility thats not us.

Speaker 2: Yeah, certainly the commercial aftermarket is the strongest driver of the growth we've seen out performance year to date. And we expect that to contain the second half. But visibility that's not as, it's harder because you're looking at market data. You're not getting the actual orders in, it's not a backlog business. We mainly have 45 to 60 days worth of orders in here.

It's harder because youre looking at market data youre not getting the actual orders and it's not a backlog business. We may only have 45% to 60 days worth of.

<unk>.

Speaker 2: visibility for that. So I think there may be a little conservatism on what the mix will be. We know what OEM rates are, they can change, but the aftermarket mix

The visibility for that so I think there may be a little conservatism on what the mix will be we know with OEM rates are they can change, but the aftermarket mix I think it's stable moving forward commercial still strong military usually has a big surge in Q4, we see a lot of spares orders.

Speaker 2: I think it's stable moving forward, commercial still strong, military usually has a big surge in Q4. We see a lot of spares orders in our fiscal Q4, but we don't provide guidance by market segment. We like to tell you the trends, but sometimes one segment outperforms that helps cover underperformance in another segment. That's the benefit of our balance of diversity.

In our fiscal Q4.

But we don't we don't provide guidance by market segment, we would like to tell you the trends, but sometimes one segment outperforms that helps cover underperformance in other segment Thats the benefit of our balanced diversification.

Speaker 7: So basically, you're saying that the mix should be the same going forward, or is the mix shifting toward OA net net?

So basically you are saying that the mix should be the same going forward or is the mix shifting toward a way net net.

Speaker 2: I don't think it's going to shift towards OE because the aftermarket is stronger in the fourth quarter particular both for military and

I don't think thats going to shift towards OE, because the aftermarket is stronger in the fourth quarter particular, both for military and commercial.

So.

I guess youre, probably going to be at work aftermarket in the second half of the year.

Speaker 2: I guess you're going to probably going to be at more aftermarket in the second half of the year, but it depends on the rate ramps at the moment. I think aftermarket is probably going to overtake and continue to be stable to increase the percentage of our sales.

But it depends on the OEM rate ramps at the moment I think aftermarket target overtaken continue to be stable to increasing as a percentage of our sales.

Thank you very much.

Speaker 3: Thank you. And our next question today comes from Miles Walton with Wolf Research. Please go ahead.

Thank you and our next question today comes from Myles Walton with Wolfe Research. Please go ahead.

Speaker 8: Hey, thanks. So, just back to the clarification on Kai's question. So, the slide 8, is that referring to that 11 percent growth in fiscal 24? Is that referring to the whole channel of MRO or the commercial channel?

Hey, Thanks, So just actually a clarification on <unk> question. So the slide eight.

Is that referring to that 11% growth in fiscal 'twenty four is that referring to the whole channel of MRO or the commercial channel in isolation.

Speaker 2: Whole channel so we have about a hundred and fifty two million I think it fails And that's the breakdown in the quarter of Fails by aftermarket it's broken into third party emerald Where it's not our ID necessarily and

Its whole channels. So we have about $152 million I think of sales.

And that's the breakdown.

Order of sales by aftermarket is broken into third party MRO.

Where it is not our IC necessarily.

The spares, which obviously can be the highest margin and then the third pieces, our IP, which are higher margin typically.

Speaker 2: Spares, which obviously can be the highest margin, and then the third piece is RIP, which are higher margins typically than repairs on third parties.

Then our repairs on third party.

Speaker 2: Got it. Okay. And then, oh, let me say my little by the page you can see we have the Q2 and the year day breakdown for all those.

Got it Okay and then okay.

Okay.

Most of them by the page you can see we have as of Q2 and the year to date breakdown for all of those components.

Speaker 8: Yeah, no, that's helpful. Thanks for that transparency. You mentioned the portal showing you 5.3 per month on the 787. Could you also share what it's looking at for the 3.7? And maybe, Dan, that big growth you're anticipating in interiors, I imagine that's primarily inflation-driven on the 3.7. Is that correct?

Helpful. Thanks for thanks for that transparency.

You mentioned the portal showing you $5 three per month on the 77 could you also share what it is looking at for the three seven.

And maybe Dan that that big growth Youre anticipating in interiors I imagine that's primarily inflation driven on the 37 is that correct.

Speaker 1: It's one of the largest programs in interiors for sure, but it's certainly not the only one we have a 220 work out of airbus. We do 787 work. So it's a mix of programs, but it is the largest.

It's one of the largest programs <unk> for sure, but it's certainly not the only one.

820 work out of Airbus, We do 707 work so it's a mix of programs, but it is the largest.

Speaker 1: On the OEM rates, Boeing is taught quite publicly about their step up to 38, whether it's going to come in the calendar Q4, the following quarter. But we're building at rates that are approaching that now and we're typically on average about one quarter. Step.

On the OEM rates Boeing is.

Talk quite publicly about their step up to 38, whether it's going to come.

And the calendar Q4, the following quarter.

But we're building at rates that are approaching that now and we're typically on average about one quarter setback.

Setback from them.

Speaker 1: So as they ramp up, you know, we're already delivering into the pipeline, you know, sometimes to intermediaries and then products that flow to Boeing. So our factories are building at rates 30 to 35 a month right now and in priming for rates that go up into 40 next year or fiscal 25. So that's the general 737 outlook for us.

So as they ramp up.

We're already delivering into the pipeline, sometimes to intermediaries and then products that flow to Boeing.

Our factories are building at rates of 30% to 35.

<unk> right now.

And priming for rates that go up into 40 next year or.

In our fiscal 'twenty five.

That's the general.

Our 787 outlook for us.

Speaker 1: Airbus is a similar story. We're building it at rates that are in the high 40s and planning for rates for the 50s next year and 60s thereafter.

Airbus is a similar story we are building.

At rates that are.

In the high <unk> and planning for rates for the <unk> next year and <unk> thereafter.

Speaker 8: Okay. There's one last quick one. When you mentioned portfolio actions in terms of pursuit of the balance sheet improvement, could you elaborate on the size of any potential pruning you might be looking at or business lines that you might be thinking about from that perspective?

Okay, and just one last quick one when you mentioned portfolio actions in terms of the pursuit of the balance sheet.

Improvement could you elaborate on the size of any potential turning you might be looking at our business lines that you might be thinking about.

That perspective thanks.

Speaker 1: We really can't, you know, it's one of these things every year we're looking at every business trying to make sure we're managing the portfolio for shareholder value. But deleveraging is our top priority, debt reduction. And so we've had inbounds for several of our businesses. And one of the challenges is because we're on a ramp across OEM and MRO, what's the value of these businesses?

We really can't.

It's one of these things every year, we're looking at every business trying to to make sure we're managing the portfolio.

Shareholder value, but deleveraging is our top priority debt reduction and so we've had inbounds for several of our businesses.

One of the challenges is because we're on a ramp across OEM and MRO.

The value of these businesses.

Speaker 1: You could understand that people would come calling when the rates have been depressed and we're on the sort of, I'll call it the base mountain climb of OEM and MRO rates. So, you know, people who have interest in these businesses have to properly value them. But we'd want them to be needle movers for deleverage.

You could understand that people would come calling win.

The rates have been depressed and we're on the sort of I'll call. It the base base mountain to climb.

OEM and MRO right. So.

People, who have interest in these businesses have to properly value them, but we'd want them to be needle movers for deleveraging or not.

Speaker 1: not just around the margins.

Not just.

Around the margin.

Okay. Thanks again.

Ed.

Speaker 3: Our next question today comes from Michael Ceremonial with Truist. Please go ahead.

Our next question today comes from Michael <unk> with Truest. Please go ahead.

Speaker 9: Hey, good morning, guys. Nice results. Thanks for taking the question. Just to maybe go back, the detail's pretty solid here on slide eight. And it looks like, I mean, spares were up 37% sequentially. I mean, can you maybe parse that out for us? Was it more commercial? Was it more military? And kind of what you're seeing out there and what drove that level of spares activity?

Hey, good morning, guys nice results. Thanks for taking the question.

Just to maybe go back.

Details pretty solid here on slide eight it looks like I mean spares were up 37% sequentially. I mean can you maybe parse that out for US was it more commercial was it more military and kind of what your what youre seeing out there on what drove that level of spares activity.

Speaker 2: I'll start. Sure. It was more commercial this quarter and that's why I think the margin impact was a little less than you might see from some of the military spares, but it's lumpy business. As we've talked about before, we're fortunate with surge this quarter, and the fourth quarter is typically when we see the biggest surge in spares, and there are opportunities to increase spares volume, which we continue to work on and increase spares pricing to cover increasing costs and enhance margins.

Yes, Michael I'll start it was more commercial this quarter and Thats why I think the margin impact.

<unk> little less than you might see from some of the military spares.

But.

It's a lumpy business as we've talked about before.

We're fortunate with <unk>.

This quarter and the fourth quarter is typically when we see the biggest surge in spares.

And there are opportunities to increase spirit's volume, which we continue to work on and increased pricing to cover increasing costs and enhance margins moving forward.

Speaker 1: I know you have models for air traffic, but the ones we watched showed the first 10 months

I know you.

So you have models for air traffic, but the ones. We watched showed the first 10 months.

Speaker 1: of U.S. traffic, TSA volumes were above 2019 levels by 1.4%, but more importantly, September and October , traveler throughput was up 5.7% over the 2019 levels. So it's definitely ramping, and that's driving the carrier to invest in spares.

U S traffic TSA volumes were above 2019 levels by one 4%, but more importantly September and October.

Traveler throughput was up five 7% over the 2019 levels. So it's definitely ramping and thats driving the carriers to invest in spares.

Speaker 1: and repairs. And the timing, you know, you all commented on the strong commercial MRO sales. As Jim mentioned, these fleets are coming out of service. They hit their peak volume, TSA volumes in July . So they're bringing them in for maintenance and we're benefiting from that.

And repairs and the timing you all commented on the strong MRO commercial MRO sales.

As Jim mentioned these fleets are coming out of service they hit their peak volume.

Volumes in July so the bringing them in for maintenance and we're benefiting from that.

Speaker 9: Got it. And then just, I mean, you had been forecasting, I think, four to six percent after market growth. It's now 11. Any, can you give us any of the underlying military commercial? Is it more spares? I mean, the IP sales look pretty flattish, but maybe just what really drove that increase? And I would imagine, you know, with the Pratt issues, you know, airlines flying some of these older planes longer has to help.

Got it and then just I mean, you had been forecasting I think 46% aftermarket growth. It's now 11.

Any can you give us any underlying military commercial is it more spare shift I mean, the IP sales look pretty flattish, but may be just what really drove that increase and I would imagine with the Pratt issues Airlines supply in some of these older claims longer hosta has to <unk>.

Okay.

Well, we've been in touch with the proud about ways, we can help and thats been a productive dialogue.

Speaker 1: Well, we've been in touch with Pratt about ways we can help, and it's been a productive dialogue. I would say right now repairs are outpacing spares on the military side.

I'd say right now repairs are outpacing spares on the military side.

Speaker 1: And that's going to, I think, revert as the depletion of U.S. stockpiles to support the various conflicts leads to orders for new spare hardware to replace those. So it's, these things tend to swing in their own cycles, repairs and spares. But thanks for the recognition of the progress on spares. You know, last year, the spare sales were softer. So we're encouraged to see them coming back.

And that is going to I think rivard as depletion of U S stockpiles to support the various conflicts leads to orders for new.

Spare hardware to replace those so these things tend to swing in their own cycles repairs and spares, but thanks for the recognition of the progress on spares.

Last year, the spare sales were softer so we're encouraged to see them coming back triumph does a lot of line replaceable units.

Speaker 1: Triumph does a lot of line replaceable units, and that's really the beauty of the new portfolio is if you tour our plant.

Really the beauty of the new portfolio is if you tour our plants.

Speaker 1: You see these actuators, heat exchangers, and gearboxes. And these are the items that are used up, consumed during operation, and typically replaced, not at heavy maintenance, but at frequent check.

You see these actuators heat exchangers.

Gearboxes and these are the items that are used up.

<unk> during operation and typically replace not a heavy maintenance, but a frequent checks.

Speaker 2: In terms of the mix of the driver of the increase in growth, as you can see, two-thirds of our aftermarket is repairs, one-third spares. So it's more repairs than spares, and it's probably a little more commercial than military for the back end.

In terms of the mix of the driver of the increase growth.

As you can see two thirds of our aftermarket is repairs one third spares.

It's more repairs and spares and it's probably a little more commercial and military for the back half of the year.

Speaker 1: Got it. Thanks guys. I'll jump back in the queue here. Thanks, Michael.

Got it thanks, guys I'll jump back in the queue here.

Thanks, Michael.

Speaker 3: Thank you. And our next question today comes from Ronald Epstein with Bank of America. Please go ahead.

Thank you and our next question today comes from Ronald Epstein with Bank of America. Please go ahead.

Speaker 10: Hey guys, good morning. Just trying to understand what happened with the interiors ductwork and the composite, if you can kind of go in more detail.

Hey, guys.

Good morning.

I'm just trying to understand what happened.

The interiors dock work.

The composite if you can kind of go in more detail.

Speaker 10: What it seems like as of maybe last quarter, this sort of came out of nowhere.

But it seems like.

As of maybe last quarter that sort of came out of nowhere.

Speaker 10: And I guess what I'm worried about is could this happen in another business or not? Or I mean, how should we think about that?

And I guess, what I'm worried about is could this happen in other business or not or I mean, how should we think about that.

Speaker 1: Yeah, and I'm giving lots of inside baseball on the tiers more than we ever have in the past, but on composites, recall we used to build this, these products, these ducks, at our Spokane Washington plant. And we moved them to Mexico. And at the time, a condition of transfer with Boeing is that we produce them in the same manner. And we really missed an opportunity to relay out the line, add more automation. Our innovation...conversations.

Yes.

Giving lots of inside baseball on materially more than we ever have in the past but.

On composites recall, we used to build this these products. These docs at our Spokane, Washington plant, and we moved to Mexico and at the time.

Condition of transfer with Boeing is that we produce them in the same manner.

And we really missed an opportunity to re lay out the line add more automation.

Speaker 1: From their point of view, it was to avoid any changes that might lead to quality issues. But now that we've stabilized production in Mexico, we're going back through the line with Boeing in partnership to take out further cost. And I'm highly confident that we're going to see the sort of productivity gains and composites that we saw, that we do see today in installation. So that's one change. This business has been a 20% plus business before.

From their point of view was to avoid any changes that might lead to quality issues, but now that we've stabilized production in Mexico, we're going back through the line with Boeing in partnership.

Out further costs.

Highly confident that we're going to see the sort of productivity.

Gains in composites that we saw.

Do see today, an installation. So that's that's one change this business has been a 20% plus business before.

Speaker 1: And we're focused on getting it back there. And we plan to exit this year with strong margins that are double digits on operating margins and then get it back into higher margins.

And we're focused on getting it back there and we plan to exit this year with.

Strong margins that are double digits on operating margins.

And then get it back into higher margins over our planning horizon.

Speaker 2: Yeah, and I would add, obviously, the cost challenges are multifaceted. It's there's inflation down there that's been higher than we've experienced in other countries. There's the FX headwind with the peso strengthening, and then there's directed supplier costs that we continue to work on because they have some sole source directed suppliers.

Yes, I would add obviously the cost challenges are multifaceted theres inflation down there that's been higher than we've experienced in other countries.

There is the FX.

Headwind with the peso strengthening and then Theres directed supplier cost that we can continue to work on because that's a sole source directed suppliers.

Speaker 2: And we have opportunities sometimes through adjustment clauses to recover that, sometimes we need to develop second sources or work to pass through the prices. So there's lots of levers. There was a, it was a challenge and it was a bit of a surprise in Q1, but we're all over it and we're going to improve it.

And we have opportunities sometimes through adjustment clauses to recover that sometimes we need to develop second sources work the pass through.

The prices. So there's lots of levers there was a it was a challenge and it was a bit of a surprise in Q1, but we're all over it and we're going to improve for the balance of the year.

Speaker 10: Yeah, got it, got it, got it. And then, Jim, how are you thinking about, I mean, really the refinancing that has to happen given where interest rates are now?

Yeah got it got it got it and then Jim how are you thinking about and then really.

The refinancing that has to happen given where interest rates are now.

Speaker 10: I mean, what you kind of alluded to, there's maybe some creative things you could do. Could you give us a hint to what you're thinking?

Okay.

You kind of alluded to there is maybe some creative things you could do could you give us a hint.

Thank you.

Speaker 2: Well, as you know, we're opportunistic, so we continue to monitor the markets, and if there's an opportunity to refinance at good cost in terms, we would consider doing that. But we're also improving the business dramatically, positive free cash flow this year, improving our credit. So, we don't want to move too fast that we don't get the benefit of our improved credit. We've been recently telling Moody's upgraded our corporate family rating as well as our.

Well as you know we're opportunistic so we continue to monitor the markets and if theres an opportunity to refinance that good cost in terms, we would consider doing that but we're also improving the business dramatically positive free cash flow this year, improving our credit. So we don't want to move too fast. So we don't get the benefit of our improved.

Credit.

Yes.

Recently, Moody's upgraded our corporate.

Family rating as well as our 25 bonds at.

Speaker 2: At the same time, we're buying back with excess cash the bonds, we bought them back at a discount, so we create a gain, we reduce our interest expense, we're going to continue to do that as we can with excess cash from cash flow from operations, from working capital liquidations. So, we're going to keep chipping away until it gets to a point where we can consider whether there are some delevering actions we can take with the portfolio, which we talked about, or whether we want to refinance. These aren't due until August the 25th.

At the same time, we are buying back with excess cash the bonds.

Pulling back at a discount so we create a gain will reduce our interest expense, we're going to continue to do that as we can with excess cash from cash flow from operations for working capital liquidations.

So we're going to keep chipping away till it gets to a point, where we can consider whether there are some delevering actions, we can take with the portfolio, which we've talked about for whether we want to refinance these aren't due until August of 'twenty five so they don't go current until.

Speaker 1: So they don't go current until next August next year, but we're keenly aware of it and we're watching the markets. So it's not a big concern about refinancing, but we do want to de-leverage. So it'd be best if we could just reduce that debt altogether and not have to refinance.

Next August next year.

But we are keenly aware of it and we're watching the markets. So it's not.

Our big concern about refinancing that we do wanted to Delever. So would be best if we could just reduce debt that altogether and not have to refinance.

Got it alright. Thanks.

Thanks, Ron.

Speaker 3: And our next question today comes from Noah Proponik with Goldman Sachs. Please go ahead. Hey, good morning everyone.

And our next question today comes from Noah <unk>.

Goldman Sachs. Please go ahead.

Hey, good morning, everyone.

Good morning.

What is assumed in your 2025 and 2026 margin plan for the interiors margin.

Speaker 2: What is assumed in your 2025 and 2026 margin plan for the interiors?

Okay.

Speaker 2: I'm hesitating, Noah, because I don't want to get into the margins of the segments, which we have given.

Hesitating, because I don't want to get into the margins of the segments, which were given.

Speaker 2: We said that this has been a 20% margin business in the past. I've said that this is easily back to the mid-teens on a normalized basis. So you can imagine if we're just coming out of September and break even-ish, we're looking to, in fact, for the full year, have mid to single high-digit on EBITDAF percentages. So you can expect to be in the double-digit percentages during this period.

We said that.

This has been a 20% margin business in the past I've said that this is easily back to the mid teens on a normalized basis. So you can imagine we're just coming out of September and breakeven ish, we're looking to.

For the second for the full year have mid to single high digit on EBITDA percentages. So you can expect to be in the double digit percentages during those periods.

Speaker 1: Yeah, what I'm most excited about is the growth in actuation and engine controls. Actuation is going to hit 500 million in sales this year, and 20% plus for on business with great aftermarket and engine controls is one that's getting a lot of that military MRO work.

We know what Im most excited about is the growth that actuation and engine controls actuation is going to hit 500 million in sales.

Sales this year and.

20% plus strong business with great aftermarket.

In engine controls is one that's getting a lot of that military MRO work.

Speaker 1: and new winds on helicopters. So even though Interior's getting a lot of headlines, it's, again, still 10% of the business. We know the drivers, we're fixing it. But the core parts, what I'll call the crown jewels of the company, actuation, engine controls, are really performing well.

New wins on helicopters, so even though interiors getting a lot of headlines again still 10% of the business. We know the drivers were fixing it.

But the core parts, what I'll call the Crown jewels of the company actuation engine controls are really performing well.

Okay.

Speaker 11: Um, Jim, the release and the presentation, um, discussed.

Sure.

Jim.

The release and the presentation.

Discuss.

Speaker 11: recent debt reduction, but I'm seeing a few different numbers.

Recent debt reduction.

But I'm seeing a few different numbers.

Speaker 11: I'm seeing a different number for the 2025s than I thought was left there. Can you just level set me on, what did you pay down in the quarter? What have you paid down since the end of the quarter? And what's left on the 25?

A different number for the 2025.

So it was left there can you just level set me.

What did you pay down in the quarter or what have you paid down since the end of the quarter.

And what's left on the 25.

Speaker 2: Yeah, so in the quarter we paid down $19 million.

Yes.

In the quarter, we paid down $19 million of the bonds.

Speaker 2: Subsequent to the quarter, we've paid down another $29 million.

Subsequent to the quarter, we paid down another $29 million of the bonds and.

Speaker 2: And back in Q1, with the warrants, 14 million of debt.

And back in Q1, there was with the.

Warrants $14 million of debt was retired as part.

Part of that process.

Yes.

Speaker 2: Okay, take that off 500 where we're going to be right now.

Okay.

500.

We're going to be right now.

Okay.

And the it looks like you are saying on slide nine that that action reduces.

Speaker 11: And the it looks like you you're saying on slide nine that that action reduces.

Speaker 11: interest expense and that flowed to the free cash flow guidance, is that correct?

Interest expense.

That flowed to the free cash flow guidance is that correct.

So it does reduce interest expense for the balance of this year, but on a full year basis, it's $5 million. So that's not in the year. That's a couple of years.

Speaker 2: So it does reduce interest expense for the balance of this year, but on a full year basis, it's $5 million. So that's that's not in the year.

Speaker 11: That's a full year, so this year is a piece of that and then a piece of just core business operations.

That's a full year. So this year is a piece of that and a piece of just core business operations.

Correct.

Okay.

Speaker 11: And then I guess related to that, that's a positive.

And then I guess related to that.

That's a positive.

But.

Speaker 11: you've got the big 4Q where you're citing volume, which makes sense because of what's happening with, you know, sort of planned volumes, but you continue to operate in these end markets where the planned volumes are shifting around.

<unk> got the big four Q, where you're citing volume, which makes sense because of what's happening with <unk>.

Sort of planned volumes, but we continue to operate in these end markets were the planned volumes are shifting around and so.

Speaker 11: I guess I was a little surprised you raised it given that, but at the same time you're giving us these numbers halfway through the quarter here. So I don't know, what's the level of confidence in that number or where is there a risk of something sliding out at the end of your year and into next year on that free cash flow

I guess I was a little surprised you raised given that but at the same time you are giving us these numbers halfway through both the.

The quarter here, so I don't know whats the level of confidence in that number or where is there risk of something sliding out of the NDA for your year and into next year on that free cash flow plan.

Speaker 2: Yeah, we're highly confident in our numbers and we have a very detailed bottoms up forecasting process by program by site. The risks come in the demand in the aftermarket, which we don't have long term visibility.

Yes.

Really confident in our numbers.

Have a very detailed bottoms up forecasting process by program by site.

The risks come in with the demand in the aftermarket, which we don't have long term visibility too.

Speaker 2: And then, of course, OEM rates, but I think it's less on OEM rates as much as we talk about those, you know, with aftermarket being growing so much and being so important to the fourth quarter, that's where the risk is, it's just demand. And that demand is so diverse that I think it's lower risk than a particular OEM rate

And then of course, OEM rates, but I think less and less on OEM rates as much as we talk about those with aftermarket being.

Growing so much in being so important to the fourth quarter.

The risk is is just demand and that demand is so diverse that I think it's lower risk than particular OEM rate schedule might be yes.

Speaker 1: And working capital certainly is a big swinger, and we're highly focused on that. We ran dozens of lean events in October , we're going to continue those through the second half of the year, and, you know, we're doing all the kinds of analysis on our

Working capital is certainly is a big swinger and we're highly focused on that we ran dozens of lean events.

In October we are going to continue those through the second half of the year.

We're doing all the kinds of analysis on our.

Speaker 1: material planning, and work in process, and finished goods, and safety stocks, and rotables, and things that drive working capital. So the rates do affect inventory burndown because the rates help us to draw up on that what's on the shelf, but that's that's one of the swingers as well, but we're confident we're going to make it.

Material planning and work in process and finished goods safety stocks and notables.

The things that drive working capital so the rates do affect inventory burn down because the rates help us draw upon what's on the shelf but.

That's one of the swingers as well, but we're confident we're going to make it.

Okay I appreciate your time thank you.

Speaker 3: Thank you, and ladies and gentlemen, this concludes today's question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Thanks Noah.

Thank you and ladies and gentlemen. This concludes today's question and answer session and today's conference call.

Thank you all for attending today's presentation.

Now disconnect your lines and have a wonderful day.

Okay.