Q4 2024 Triumph Group Inc Earnings Call

Operator: Good day, and welcome to the Triumph Group first quarter fiscal year 2024 results conference call. All participants will be in listen-only mode.

Good day and welcome to the Triumph group first quarter fiscal year 'twenty 'twenty four results conference call.

Speaker Change: All participants will be in listen only mode.

Operator: So if you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: So do you need assistance, please see more conference specialist by pressing the star followed by zero.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Can I ask a question you May press Star then one on your telephone keypad.

Operator: To adjourn your question, please press star then 2. Please note, today's event is being recorded. I'd now like to turn the conference over to Thomas Quigley. Please go ahead, sir.

Speaker Change: Your question. Please press Star then two.

Speaker Change: Please note today's event is being recorded.

Speaker Change: I'd now like to turn the conference over to Thomas quickly. Please go ahead Sir.

Thomas A. Quigley: Thank you. Good morning, and welcome to our fourth quarter fiscal 2024 earnings call. Today I'm joined by Dan Crowley, the company's chairman, president, and chief executive officer, and Jim McCabe, senior vice president and chief financial officer of Triumph. As we review the financial results for the quarter and full fiscal year, please refer to the presentation posted on our website. We'll discuss our adjusted results. Our adjustments and any reconciliation of non-GAAP financial measures to comparable GAAP measures are explained in the earnings press release and in the presentation.

Speaker Change: Good morning, and welcome to our fourth quarter fiscal 2024 earnings call today, I'm joined by Dan Crowley, The company's Chairman, President and Chief Executive Officer, and Jim Mccabe, Senior Vice President and Chief Financial Officer.

Speaker Change: As we review the financial results for the quarter and full fiscal year.

Speaker Change: Refer to the presentation posted on our website this morning.

We'll discuss our adjusted results.

Speaker Change: Adjustments in any reconciliation of non-GAAP financial measures to comparable GAAP measures are explained in the earnings press release and in the presentation.

Thomas A. Quigley: Certain statements on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause Triumph's actual results, performance, or achievements to be materially different from any expected future results, performance, or achievements expressed or implied in a forward-looking statement.

Speaker Change: Certain statements on this call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Speaker Change: These forward looking statements involve known and unknown risks uncertainties and other factors, which may cause <unk> actual results performance or achievements to be materially different from any expected future results performance or achievements expressed or implied in the forward looking statements.

Speaker Change: Yeah, I'll turn it over to you.

Daniel J. Crowley: Thanks, Tom. And welcome to Triumph's fourth-quarter call. Before we get into the details of the quarter, I'd like to start by recapping the full fiscal year results. Fiscal 24 was a successful year for Triumph. We achieved or exceeded our strategic and financial objectives despite market dynamics while improving safety and quality to all-time highs for the company. Here are a few supporting facts.

Speaker Change: Thanks, Tom and welcome to <unk> fourth quarter call before we get into the details of the quarter I'd like to start by recapping the total fiscal year results.

Speaker Change: Fiscal 'twenty four was a successful year for trial we.

Tom: We achieved or exceeded our strategic and financial objectives, despite market dynamics.

Tom: While improving safety and quality to all time highs for the company.

Daniel J. Crowley: Triumph sold our third-party maintenance business for 14 and a half times EBITDA to allow us to focus on our core systems and OEM MRO business. We reduced total debt by over $700 million and accelerated our deleveraging by two years. We retired our outstanding warrants, generating $100 million in net proceeds.

Tom: Here are a few supporting facts triumph sold our third party maintenance business for $14 five times EBITDA to allow us to focus on our core systems and OEM MRO business.

Tom: We reduced total debt by over $700 million and accelerated our deleveraging by two years.

Tom: We retired our outstanding warrants generating $100 million and net.

Tom: <unk>.

Daniel J. Crowley: Triumph increased aftermarket revenues by 19%, which carries strong margins, and we improved systems and support adjusted EBITDA margin by 70 basis points, while improving our free cash flow by $60 million. We also held a successful Investor Day with over 200 in-person attendees and provided multi-year targets. And last, we met or exceeded all of our internal sustainability goals on our journey towards our long-term ESG objectives.

Tom: <unk> increased aftermarket revenues by 19%, which carry strong margins.

Tom: And we improved systems and support adjusted EBITDA margin by 70 basis points.

Tom: While improving our free cash flow by $60 million.

Tom: We also held a successful investor day with over 200 in person attendees.

Tom: And provided multiyear targets.

Tom: And last we met or exceeded all of our internal sustainability goals on our journey towards our long term ESG objectives.

Daniel J. Crowley: Overall, Triumph's strong fiscal results in a challenging market environment position us to accelerate its profitable growth over what we expect to be the next aerospace and defense supercycle in the coming years. As we post our results for the fourth quarter that ended in March, I'm pleased to report that we delivered our eighth consecutive quarter of organic sales growth while generating positive free cash flow. Turning to slide three, I'll highlight key accomplishments from the quarter. We closed the sale of our product support business and used the proceeds to retire over $550 million in debt. We generated year-over-year organic sales growth of 11%.

Tom: Overall try them strong fiscal results in a challenging market environment positions us to accelerate its profitable growth.

Tom: For what we expect to be the next aerospace and defense Super cycle in the coming years.

Tom: As we post our results for the fourth quarter that ended in March I am pleased to report that we delivered our eighth consecutive quarter of organic sales growth.

Tom: While generating positive free cash flow.

Tom: Turning to slide three I'll highlight key accomplishments from the quarter.

Tom: We closed the sale of our product support business and use the proceeds to retire over $550 million in debt.

Tom: We generated year over year organic sales growth of 11% driven by seasonally strong aftermarket demand.

Daniel J. Crowley: Driven by seasonally strong aftermarket demand, we grew our total company backlog by 22%, which is above the market growth rate, as Triumph expands its participation in a broad array of platforms, customers, and end markets. We achieved non-aviation sales of 6% on increasing maritime and artillery demand.

Tom: We grew our total company backlog by 22%, which is above market growth rates as try and expand its participation in a broad array of platforms customers and end markets.

Tom: We achieved non aviation sales of 6% on increasing maritime and artillery demand.

Daniel J. Crowley: We also executed $40 million in cost reduction actions across the company to reduce short-term margin dilution and enhance our out-year profitability. These actions will also help us to achieve the long-term earnings and cash metrics we presented at our Investor Day, which Jim will update for our post product support portfolio. While overall Q4 sales and pre-cash flow were strong, as were system and support earnings, overall earnings were impacted by $5 million in restructuring charges along with continued margin weakness in our interiors business.

Tom: We also executed a $40 million and cost reduction actions across the company to reduce short term margin dilution and enhance our out year profitability.

Speaker Change: These actions will also help us to achieve the long term earnings and cash metrics, we presented at our Investor Day, which Jim will update for our post products support portfolio.

Speaker Change: While overall Q4 sales and free cash flow were strong as were system and support earnings.

Speaker Change: Overall earnings were impacted by $5 million in restructuring charges, along with continued margin weakness and our interiors business.

Daniel J. Crowley: Let me provide some perspective on interiors and update the actions we are taking to improve its profitability. While interiors demand is coming back, as demonstrated in the 22% volume increase in the quarter from the prior year, profitability and free cash flow continue to lag expectations due to the previously mentioned external headwinds. While interior sales represent less than 15% of Triumph's total sales, we are committed to restoring its historical levels of profitability and free cash flow through the following actions.

Speaker Change: Let me provide some perspective on interiors and update the actions we are taking to improve its profitability.

Speaker Change: <unk> demand is coming back as demonstrated in the 22% volume increase in the quarter from prior year.

Speaker Change: Profitability and free cash flow continue to lag expectations due to the previously mentioned external headwinds.

While interior sales represents less than 15% of <unk> total sales, we are committed to restoring it to historical levels of profitability and free cash flow through the following actions.

Daniel J. Crowley: First, winning additional work from Boeing, Airbus, Spirit, and KHI to generate increased cash and profit and help absorb their fixed overhead. We are in final negotiations to transfer 787 ducting work supplied by a competitor to our world-class Zacatecas, Mexico plant, a sign of the trust our customers have in Triumph and their need for ready capacity. Second, we put in place hedges for the PESO that cap further margin erosion. Third, we identified a second source for the raw material provider who raised prices last year and have initiated the qualification effort.

Speaker Change: First winning additional work from Boeing Airbus Spirit, NK Jive to generate increased cash and profit and help absorb their fixed overhead.

We are in final negotiations to transfer 787, ducting work supplied by a competitor to our world class that could take us Mexico plan.

Speaker Change: The sign of the trust our customers have in triumph and their need for ready capacity.

Speaker Change: We put in place hedges for the peso that cap further margin erosion.

Speaker Change: Third.

Speaker Change: We identified a second source for the raw material provider, who raised prices last year.

And have initiated the qualification effort.

Daniel J. Crowley: Fourth, we continue to drive labor productivity through lean events to offset the minimum wage increases affecting all companies doing business in Mexico. We are confident that with the anticipated rate recoveries on the 737 and 787, additional work scope, price increases, and labor productivity increases, we can bring interior margins back to historical levels. As we chart the two to three year trajectory for Triumph, we remain very optimistic about the positive underlying growth drivers in play across our markets, which include rising commercial aftermarket spares and repair demand.

Speaker Change: Fourth we continue to drive labor productivity through lean events to offset the minimum wage increases affecting all companies doing business in Mexico.

Speaker Change: We are confident that with the anticipated rate recoveries on the 737% and 787.

Speaker Change: Additional work scope price increases and labor productivity increases we.

Speaker Change: We can bring interiors margins back to historical levels.

As we chart the two to three year trajectory for trial, we remain very optimistic about the positive underlying growth drivers in play across our markets, which include rising commercial aftermarket spares and repair demand.

Daniel J. Crowley: Recovering commercial transport aircraft volume and the Strong and Stable Military Budget, including many new military programs in development. Triumph's backlog rose more than 22% year-over-year, with orders driving a book-to-bill of $1.28 on the strength of our product offerings and focus on customer engagement.

Speaker Change: Recovery in commercial transport aircraft volume.

Speaker Change: And a strong and stable military budget, including many new military programs in development.

Speaker Change: <unk> backlog rose more than 22% year over year with orders driving a book to Bill of 128 on the strength of our product offerings.

Speaker Change: And focus on customer engagement.

Daniel J. Crowley: Both the military and commercial backlog grew by 10% and 22% year over year, respectively, which will benefit Triumph's top line going forward. As shown on page four, the top five programs in our backlog are all growing at a rate over our planning horizon and are made up primarily of systems content. Note that the 6th through the 10th programs in backlog are all military platforms that are exclusively systems content. Starting with our aftermarket sales, Triumph continued its multi-year trend of increasing demand in fiscal 24, as noted on page 5, and received new MRO orders in Q4 for the following products. The V-22 pylon conversion actuators, the Navy's SH-60 engine control upgrades.

Speaker Change: Both military and commercial backlog grew by 10% and 22% year over year, respectively.

Speaker Change: Which will benefit <unk> topline going forward.

Speaker Change: As shown on page four of the top five programs in our backlog are all growing in rate over our planning horizon and are made up primarily of systems content.

Speaker Change: Note that the six through the 10th programs and backlog are all military platforms that are exclusively systems content.

Speaker Change: Starting with our aftermarket sales triumph continued its multiyear trend of increasing demand in fiscal 'twenty four as noted on page five.

Speaker Change: And received new MRO orders in Q4 for the following products.

Speaker Change: <unk> 22 pylon conversion actuators.

60 engine control upgrades.

Daniel J. Crowley: The A380 Landing Gear Overhauls and CH-47 Spares. There are several long-term dynamics at play here as new aircraft fleets such as the A320neo and 737 MAX aircraft are heavily utilized, driving spares activities. Well, the older 787 and A380 fleets are increasingly entering their landing gear overhaul cycle, where we supply hydraulics and actuators. Turning to slide six, I provide a case in point for our aftermarket growth, where Triumph is the OEM provider of the entire landing gear actuator suite on both the 787 and the A380 aircraft.

Speaker Change: <unk> hundred 80 landing gear overhauls, and CH 47 spares.

Speaker Change: There are several long term dynamics at play here as new aircraft fleets, such as the <unk> hundred 20, Neo and 737 Max aircraft are heavily utilized driving spares activities, while the older 787% and <unk> hundred 80 fleets are increasingly entering their landing gear overhaul cycle, where we supply.

Speaker Change: Hydraulics and actuators.

Speaker Change: Turning to slide six I'll provide a case in point on our aftermarket growth.

Speaker Change: <unk> is the OEM provider of the entire landing gear actuators suite.

Speaker Change: On both the 787 <unk> hundred 80 aircrafts.

Daniel J. Crowley: Landing gear actuation overhaul activity is rising rapidly, and we're allocating more capacity to accommodate the MRO demand. These aftermarket programs carry margins that are often two to three times our OEM margins, as we supply spares and repair services to keep commercial and military aircraft in the air. We're also expanding our foreign military sales in the aftermarket as well. There are several positive developments on the military side of the business, as Triumph has engaged in a number of new development programs with Northrop Grumman, Boeing, Lockheed Martin, Kratos, Anduril, GE Aerospace, and others, in support of the NGAD and collaborative combat aircraft. Turning to slide seven, six of our top wins in the quarter were for military platforms.

Speaker Change: Landing gear actuation overhaul activity is rising rapidly.

Speaker Change: And we're allocating more capacity to accommodate the MRO demand.

Speaker Change: These aftermarket programs carry margins, which are often two to three times, our OEM margins as.

Speaker Change: As we supply spares and repair services to keep commercial and military aircraft in the year.

Speaker Change: We're also expanding our foreign military sales in the aftermarket as well.

Speaker Change: There are several positive developments on the military side of the business as triumph is engaged in a number of new development programs with Northrop Grumman Boeing Lockheed Martin create dose and derail GE aerospace and others and supported the end Gad and collaborative combat aircraft.

Speaker Change: Turning to slide seven six of our top wins in the quarter were for military platforms.

Daniel J. Crowley: We annotated the slide on the right where these are sole source awards based on Triumph IP and or new product introduction. Note the Triumph's backlog supporting military rotorcraft rose 30% year over year on the strength of our substantial IP content on the CH-53K, which rose 94% year over year to $165 million, more than offsetting the expected runout of V-22 OEM backlog. Regarding the commercial market, Airbus production rates remain strong and growing with a 10% increase in A320 family rates this year based on published information.

We aimed to take to the slide on the right where these are sole source awards based on triumph IP <unk> new product introductions.

Speaker Change: Note that <unk> backlog supporting military rotorcraft rose, 30% year over year on the strength of our substantial IP content on the CH, 53, K, which rose 94% year over year to $165 million.

Speaker Change: More than offsetting the expected run out of V 22, OEM backlog.

Speaker Change: Regarding the commercial market Airbus production rates remain strong.

And growing with 10% increase in <unk> hundred 20 family rates. This year based on published information.

Daniel J. Crowley: Recall the A320 family is Triumph's third largest program in backlog. Similarly, A350 rates are forecasted to increase, and Triumph has been asked to support higher rates of A220 production and expanded work scope. We're aware of Boeing's recent public statements concerning a delay in their planned rate increases, which have not been formally communicated to the supply chain yet. As you can imagine, the actual adjustment and build rate for a given product is a function of delivery rates, aircraft and component availability, finished goods inventory, and the supply chain's ability to flex output down and back up. Given the uncertainty about Boeing commercial transport programs, Triumph adopted a conservative fiscal 25 plan, reducing our prior internal rate assumptions between 20 and 30% depending on the Boeing platform.

Speaker Change: Recall, the <unk> hundred 20 family as triumphs third largest program and backhaul.

Speaker Change: Similarly, <unk> hundred 50 rates are forecasted to increase.

Speaker Change: <unk> been asked to support higher rates of <unk> hundred 20 production and expanded work scope.

Speaker Change: We are aware of Boeing's recent public statements concerning a delay in their planned rate increases, which have not been formally communicated to the supply chain yet.

Speaker Change: As you can imagine the actual adjustment in build rate for a given product is a function of delivery rates aircraft and component finished goods inventory.

Speaker Change: And the supply chain, the ability to flex output down and back up.

Given the uncertainty on Boeing commercial transport programs.

Speaker Change: Triumph adopted a conservative fiscal 'twenty five plan, reducing our prior internal rate assumptions between 20% and 30% depending on the Boeing platform.

James F. McCabe: This has the net effect of reducing our fiscal 25 sales guidance by approximately $70 million, or 6% from prior targets. We will update all stakeholders as Boeing finalizes its production needs. And we'll continue to hustle while we wait for Boeing to ramp up and increase market share through takeaways and second sourcing across their commercial platform. We remain fully committed to protecting Boeing's requirements and supporting future rate increases as they drive towards rate 50 for the 737 and rate 10 plus on the 787 by late 2025-2026.

Speaker Change: This has the net effect of reducing our fiscal 'twenty five sales guidance by approximately $70 million or 6% from prior targets.

We will update all stakeholders as Boeing finalizes their production needs.

Speaker Change: And we will continue to hustle, while we wait for boeing's ramp up.

Speaker Change: And increase market share through takeaways and second sourcing across their commercial platforms.

Speaker Change: We remain fully committed to protecting boeing's requirements and supporting future rate increases.

Speaker Change: As they drive towards <unk> 50 for the 737.

Speaker Change: Right 10, plus on the 787 by late 2025 2026.

James F. McCabe: We have high confidence that our operating plan for the next two years is sufficiently de-risked to support our multi-year financial target. Jim will now provide further detail on our fourth-quarter results, fiscal 25 guidance, and updated long-term outlook. Thanks, Dan, and good morning, everyone.

Speaker Change: We have high confidence that our operating plan for the next two years, the sufficiently de risked to support our multi year financial targets.

James F. McCabe: Jim will now provide further detail on our fourth quarter results fiscal 'twenty five guidance and updated long term outlook.

Jim: Thanks, Dan and good morning, everyone.

James F. McCabe: FY24 was a great year for Triumph, highlighted by the improvement on our balance sheet. The proceeds from the divestiture of the third-party MRO business had a healthy 14.5 times EBITDA multiple, combined with the use of some of our substantial tax assets, enabled us to meaningfully reduce net leverage from 7.6 times at the beginning of the year to 4.9 times at year end. The $548 million gain from the divestiture is evidence of the significant hidden value in Triumph's assets that are carried at historical cost on our balance sheet.

Speaker Change: FY 'twenty four was a great year for triumph highlighted by the improvement in our balance sheet.

James F. McCabe: The proceeds from divestiture of the third party MRO business at a healthy 14, five times EBITDA multiple.

James F. McCabe: Bind with the use of some of our substantial tax assets enable us to meaningfully reduce net leverage from seven six times at the beginning of the year to four nine times at year end.

James F. McCabe: The $548 million gain from the divestiture is evidence of the significant hidden value and triumphs assets that are carried at historical cost on our balance sheet.

James F. McCabe: On slide eight is our net debt, net leverage, and liquidity, and Q4 with the proceeds from the completed sale of the product support business. We retired the remaining 436 million of 7.75% senior notes due in 2025, clearing the runway of our next set maturity. We also redeemed 10%, or $120 million, of our 9% first lien notes due in 2028. Earlier this week, we issued a second redemption notice for an additional $120 million of our first lien notes.

James F. McCabe: On slide eight is our net debt net leverage and liquidity.

James F. McCabe: In Q4 with the proceeds from the completed sale of the product support business.

James F. McCabe: We retired the remaining $436 million of 775% senior notes due in 2025 clearing our runway of our next debt maturity.

James F. McCabe: We also redeemed, 10% or $120 million of our 9% first lien notes due in 2028.

James F. McCabe: Earlier this week, we issued a second redemption notice for an additional $120 million of our first lien notes will be complete this month.

James F. McCabe: It will be complete this month, and the combined debt reduction of over $670 million will yield $55 million of annual interest savings. We've reduced our net debt by more than half over the last year from about $1.5 billion to $700 million. We now have significant financial flexibility with our next maturity not until 2028. Another balance sheet improvement to note is our pension liability of $283 million at FY24 year end. It is down $76 million, or 21%, from FY23. Our cash availability totaled $437 million at year end, including $393 million in cash.

James F. McCabe: The combined debt reduction of over $670 million will yield $55 million of annual interest savings.

James F. McCabe: We've reduced our net debt by more than half over the last year from about $1 5 billion to $700 million.

James F. McCabe: We now have significant financial flexibility with our next maturity not until 2028.

James F. McCabe: Another balance sheet improvement to note is our pension liability of $283 million at FY 'twenty for year end, it is down $76 million or 21% from FY2023.

James F. McCabe: Our cash availability totaled $437 million at year end, including $393 million of cash.

James F. McCabe: This is prior to the announced redemption of $120 million of the 2028 first lien notes this month. On slide 9, we present the FY24 consolidated results. We achieved 13% organic sales growth driven by strong aftermarket volume.

James F. McCabe: This is prior to the announced redemption of $120 million of the 2028 first lien notes this month.

James F. McCabe: On slide nine are the FY 'twenty for consolidated results reached.

James F. McCabe: We achieved 13% organic sales growth driven by strong aftermarket volume we.

James F. McCabe: We delivered $1.192 billion of revenue, $115 million of adjusted operating income, and $144 million of EBITDA, representing a 12% EBITDA margin. During FY24, we grew our aftermarket revenue by 19% over FY23. Military aftermarket revenue was up 10%, and commercial aftermarket revenue grew 30%.

James F. McCabe: We delivered $1 192 billion of revenue.

James F. McCabe: $115 million adjusted operating income and 144 million of EBITDA, representing a 12% EBITDA margin.

James F. McCabe: During FY 'twenty four we grew our aftermarket revenue by 19% over FY2023.

James F. McCabe: Military aftermarket revenue was up 10% and commercial aftermarket revenue grew 30%.

James F. McCabe: This aftermarket revenue in the continuing business from the growing installed base of products we manufacture was 29% of revenue in FY24, up from 26% in FY23, and continues to grow. It is a profitable, diverse, and valuable revenue stream that benefits when the OEM new aircraft delivery rates are down because the aging fleet and service needs more spares and repairs. Remember that our backlog only includes purchase orders with delivery dates within the next 24 months.

James F. McCabe: This aftermarket revenue in the continuing business and the growing installed base of products. We manufacture was 29% of revenue in FY 'twenty four up from 26% in FY2023 and continues to grow.

James F. McCabe: As a profitable diverse and valuable revenue stream that benefits from the OEM new aircraft delivery rates are down because the aging fleet and service needs more spares and repairs.

James F. McCabe: Remember that our reported backlog only includes purchase orders with delivery dates within the next 24 months.

James F. McCabe: Our backlog grew 22% during FY24 from $1.55 billion to $1.9 billion. Approximately $1.15 billion of that backlog is scheduled to be shipped in FY25. We've also increased our customer diversity over the last two years, and in FY 22, sales to Boeing were 37% of our revenue. For FY24, sales to Boeing were only 23% of revenue. No other customers generated more than 10% of revenue.

James F. McCabe: Our backlog grew 22% during FY 'twenty four from 155 billion to $1 9 billion.

James F. McCabe: Approximately 1.15 billion of that backlog is scheduled to be shipped in FY 'twenty five.

James F. McCabe: We've also increased our customer diversity over the last two years.

James F. McCabe: Slide 22 sales to Boeing were 37% of our revenue for.

But in FY 'twenty for sales to Boeing are only 23% of revenue.

James F. McCabe: And within Boeing revenue, we have platform and program diversity. On slide 10, are the fourth quarter results, which show solid growth in revenue, operating income, and margins. $33 million more revenue, representing 11% organic revenue growth, 9 million more adjusted operating income, 16% adjusted operating margin, up from 14% last year, and 16% EBITDA margin on the higher revenue. Aftermarket revenue was 34% of revenue, growing from 28% in Q4 last year.

James F. McCabe: No other customers over 10% of revenue and within the Boeing revenue, we have platform and program diversity.

James F. McCabe: On slide 10 of the fourth quarter results, which showed solid growth in revenue operating income and margins.

James F. McCabe: $33 million or revenue, representing 11% organic revenue growth.

James F. McCabe: 9 million more adjusted operating income.

16% adjusted operating margin up from 14% last year and.

James F. McCabe: 16% EBITDA margin on the higher revenue.

James F. McCabe: Aftermarket revenue was 34% of revenue and growing up from 28% in Q4 last year.

James F. McCabe: Our Q4 commercial revenue is on slide 11. Commercial OEM revenue of $140 million was down $5 million, which was more than offset by the more profitable commercial aftermarket revenue, which was up $18 million on sustained demand for spares, including on multiple business jet platforms and legacy 737 aircraft. Our Q4 military revenue is on slide 12. Military aftermarket revenue of $65 million was up $11 million or 21% over Q4 last year, which offset the military OEM revenue decline.

James F. McCabe: Our Q4 commercial revenues on slide 11.

James F. McCabe: Commercial OEM revenue of $140 million was down $5 million.

James F. McCabe: Which was more than offset by the more profitable commercial aftermarket revenue, which was up $18 million on sustained demand for spares, including our multiple business jet platforms and legacy 737 aircraft.

James F. McCabe: Our Q4 military revenue is on slide 12.

James F. McCabe: Military aftermarket revenue of $65 million was up $11 million or 21% over Q4 last year, which offset the military OEM revenue declines.

James F. McCabe: Cash flow is on slide 13. For the full year, we generated $9,000 million of cash flow from operations, and after $22 million of CapEx investment had free cash use of $12 million. Q4. As expected, we generated significant positive free cash. $78,000,000 cash flow from operations and $72,000,000 of free cash. Working capital reduction contributed about $19 million of cash flow in the full year and $122 million of cash flow in the quarter.

James F. McCabe: Cash flows on slide 13.

James F. McCabe: For the full year, we generated 9 million of cash flow from operations and after $22 million of Capex investment has free cash use of $12 million for Q4 as expected we generated significant positive free cash flow.

James F. McCabe: $78 million cash flow from operations and $72 million of free cash flow.

James F. McCabe: Working capital reduction contributed about $19 million of cash flow in the full year and 122 million of cash flow in the quarter.

James F. McCabe: The comprehensive Cash Flow Walk is in the appendix on page 27. For FY25, consistent with prior year seasonal working capital cycles, we expect growth in Q1 in the range of the amount of the reduction in Q4, followed by working capital reduction in the second half of FY25. On slide 14 is our FY25 guidance. Our guidance includes the benefit of the recent $40 million in cost reduction actions that have anticipated inflation. These reductions were necessary to right-size fixed costs in the continuing business and are enabled by the standardization and efficiency work that has been done over the last several years and is ongoing.

James F. McCabe: Comprehensive cash flow walk in the appendix on page 27.

James F. McCabe: For FY 'twenty five consistent with prior year seasonal working capital cycles, we expect growth in Q1 and the range of the amount of the reduction in Q4, followed by working capital reduction in the second half of FY 'twenty five.

James F. McCabe: On slide 14 is our FY 'twenty five guidance.

James F. McCabe: Our guidance includes the benefit of the recent $40 million of cost reduction actions net of anticipated inflation.

James F. McCabe: These reductions were necessary to right size fixed cost in the continuing business and are enabled by the standardization and efficiency work that has been done over the last several years and is ongoing.

James F. McCabe: We've assumed less than the current Boeing purchase order demand in our guidance based on our expectation for a temporary shift in demand, which varies by site. We are committed to meeting our obligations to Boeing and to being prepared to support future rate increases. This assumes a temporary demand shift primarily impacts FY25, and it's not expected to impact our longer-term demand from Boeing or our longer-term financial target. Our guidance also includes approximately $75 million of price increases in FY25 over FY24, three quarters of which are already agreed and under contract.

James F. McCabe: We've assumed less than the current Boeing purchase order demand and our guidance based on our expectation for a temporary shift in demand which varies by site.

James F. McCabe: We are committed to meeting our obligations to Boeing and to being prepared to support future rate increases.

James F. McCabe: This assumes temporary demand shift primarily impacts FY 'twenty five.

James F. McCabe: And is not expected to impact our longer term demand from Boeing or our longer term financial targets.

James F. McCabe: Our guidance also includes approximately $75 million of price increases in FY 'twenty five over FY 'twenty for three quarters of which are already agreed and under contract. These.

James F. McCabe: These actual and planned price increases reflect consideration of the current and forecast cost environment, and most importantly, the value that our complex and unique products deliver to our OEM and aftermarket customers. For the balance sheet, following the announced $120 million 2028 note redemption this month, we assume $960 million of the 2028 notes remain outstanding during the year. We also assume cash funding for the forecast pension payments in FY25 of $23 million.

These actual and planned price increases reflect consideration of the current and forecast cost environment and most importantly, the value that are complex and unique products deliver to our OEM and aftermarket customers.

James F. McCabe: So the balance sheet following the announced $120 million 2028 note redemption. This month, we assume $960 million of the 2028 notes remain outstanding during the year.

James F. McCabe: We also assume cash funding for the forecast pension payments in FY 'twenty five of $23 million.

James F. McCabe: We expect net sales of approximately $1.2 billion. Additionally, we expect operating income of approximately $140 million, which is about a 22% increase over FY 24. We expect approximately $182 million of EBITDA, which is a 26% increase over FY24, and 15% EBITDA margin, which is a 300 basis point increase over 12% EBITDA margin in FY24. For free cash flow, we expect $10 to $25 million based on our conservative OEM demand and working capital assumptions. We expect halfbacks of $20 to $25 million and interest expense of $95 million. Cash Interest Payments of $90 million and cash income taxes of $12 million.

James F. McCabe: We expect net sales of approximately $1 2 billion.

James F. McCabe: We expect operating income of approximately $140 million, which is about a 2% increase over FY 'twenty four.

James F. McCabe: We expect approximately $182 million of EBITDA, which is a 26% increase over FY 'twenty four.

James F. McCabe: And 50% EBITDA margin, which is a 300 basis point increase over 12% EBITDA margin in FY 'twenty four.

James F. McCabe: For free cash flow, we expect 10% to $25 million based on our conservative OEM demand and working capital assumptions.

James F. McCabe: We expect capex of $20 million to $25 million.

James F. McCabe: Interest expense of $95 million.

James F. McCabe: Cash interest payments of $90 million and cash income taxes of $12 million.

James F. McCabe: On slide 15, we have a graphic of the recursive cycle of deleveraging benefits, which is upside to our longer-term target. As we continue to reduce debt and increase EBITDA, our credit ratings will improve. This will lead to opportunities to refinance our remaining lower debt at lower rates and reduce interest. Less interest expense means more free cash flow to reduce debt, and the cycle repeats.

James F. McCabe: On slide 15 is a graphic of the repurchase cycle of deleveraging benefits, which is upside to our longer term targets.

James F. McCabe: As we continue to reduce debt and increase EBITDA, our credit ratings will improve.

James F. McCabe: This will lead to opportunities to refinance our remaining lower debt at lower rates and reduced interest expense plus interest expense means more free cash flow to reduce debt and the cycle repeats.

James F. McCabe: We expect opportunities to improve our capital structure that are not assumed in our longer-term financial targets. The longer-term financial targets of the continuing operations are on slide 16. Sales, EBITDA Margin, Free Cash Flow Yield on Sales, and Net Leverage are presented for FY20 for actual, FY25 Guidance, and FY26 and FY28 targets. The EBITDA expansion is robust, and along with the free cash flow generation, drives the net leverage reduction. Even without the benefits of lower interest expense from potential capital structure improvements, which it does not assume.

James F. McCabe: We expect opportunities to improve our capital structure that are not assumed in our longer term financial targets.

James F. McCabe: Our longer term financial targets on the continuing operations are on slide 16.

James F. McCabe: Sales EBITDA margin free cash flow yield on sales and net leverage are presented for FY 'twenty for actual FY 'twenty five guidance in FY 'twenty six in FY 'twenty eight targets.

James F. McCabe: The EBIT expansion is robust and along with our free cash flow generation drives the net leverage reduction.

James F. McCabe: Even without the benefits of lower interest expense.

James F. McCabe: Capital structure improvements, which does not assumed.

James F. McCabe: We conservatively assume the $960 million of our 2028 notes will remain outstanding to maturity. However, we will continue to consider capital structure improvement opportunities as they become available to reduce interest and accelerate cash generation and deleveraging, which would deliver upside to these targets. We assume cash funding of the pension plan as detailed by year in the appendix on slide 23.

James F. McCabe: We conservatively assume the $960 million of our 2028 notes remain outstanding to maturity. However, we will continue to consider capital structure improvement opportunities as they become available to reduce interest and accelerate cash generation and deleveraging, which will deliver upside to these targets.

James F. McCabe: We assume cash funding of the pension plan as detailed by year in the appendix on slide 23.

James F. McCabe: We have substantial tax assets that have continued to minimize U.S. federal cash taxes for several years. Slide 17 shows the relative size of the key drivers of multi-year growth. EBITDAT margin and free cash flow are expanding more rapidly than revenue, driven by the contribution margin on the incremental volume, price increases, favorable mix for military and aftermarket revenue growth, and cost efficiency. In summary, fourth quarter results included solid organic revenue and operating income growth, operating margin expansion, cash generation, and a significant reduction in our net leverage.

James F. McCabe: We have substantial tax assets and continue to minimize U S federal cash taxes for several years.

James F. McCabe: On slide 17 are the relative size of the key drivers of the multi year growth.

James F. McCabe: EBITDA margin and free cash flow are expanding more rapidly than revenue driven by the contribution margin on incremental volume price increases favorable mix for military aftermarket revenue growth and cost efficiencies.

James F. McCabe: In summary, fourth quarter results included solid organic revenue and operating income growth operating margin expansion cash generation and a significant reduction of our net leverage.

James F. McCabe: Triumph enters FY25 with a stronger balance sheet, a profitable and diverse $1.9 billion backlog, tailwinds from the recent cost reductions, and previously negotiated price increases. The multi-year plan includes rapid margin and cash flow expansion to drive shareholder value, with upside opportunities including a lower cost of debt.

Brian: Brian centres, FY 'twenty, five with a stronger balance sheet, a profitable and diverse $1 $9 billion backlog tailwind from the recent cost reductions and previously negotiated price increases the.

Brian: The multi year plan includes rapid margin and cash flow expansion to drive shareholder value with upside opportunities, including a lower cost of debt.

Speaker Change: Now I'll turn the call back to Dan Dan.

Daniel J. Crowley: Thanks, Jim. Turning to slide 18, I will provide a few supporting facts for our bullish outlook. First, fiscal 25 is the first year when previously negotiated price increases on long-term agreements begin to cut in with full effect. As Jim noted, we estimate that over 75 million of gross price increases will become effective this year, contributing to a 300 basis point year-over-year increase in EBITDA margin. The inability of the OEMs to satisfy the high and rising demand for new aircraft has led to a growth in the average fleet age over the last five years of approximately 18 months.

Daniel J. Crowley: Thanks, Jim turning to slide 18, I'll provide a few supporting facts for our bullish outlook first fiscal 'twenty five is the first year. When previously negotiated price increases on long term agreements begin to cut in with full effect.

James F. McCabe: As Jim noted, we estimate that over $75 million of gross price increases will become effective this year contributing to a 300 basis point year over year increase in EBITDA margins.

James F. McCabe: The inability of the Oems to satisfy the high and rising demand for new aircraft has led to a growth in the average fleet age over the last five years of approximately 18 months.

Daniel J. Crowley: This, coupled with rising global travel demand, is accelerating Triumph's spares and repair business, which has experienced a 9% CAGR over the last three years as aftermarket sales finished the year at $347 million. To be clear, Triumph's aftermarket business is generated by OEM and IP within systems and support and does not include sales from the recently divested third party maintenance business.

This coupled with rising global travel demand is accelerating triumphs spares and repair business.

James F. McCabe: Which has experienced a 9% CAGR over the last three years as aftermarket sales finished the year at $347 million.

James F. McCabe: To be clear <unk> aftermarket business is generated by OEM and IP within systems and support and does not include sales from the recently divested third party maintenance business.

Daniel J. Crowley: Triumph's commercial transport production revenue grows more than $200 million from fiscal 24 to fiscal 26 if Boeing and Airbus meet their publicly shared targets for the A320 family 737 MAX, 8350, and 787. Turning to slide 19, I provide additional color on Triumph's Geared Solutions business, which has been on a steady recovery path, leveraging the Triumph operating system. This business is attractively positioned for a strong IP-driven future. Today, Geared Solutions' MRO business is driven predominantly by products developed in the 1980s, including the V-22 pylon conversion system and the FAA-18 C&D airframe mounted accessory drives, or AMAC.

James F. McCabe: <unk> commercial transport production revenue grows more than $200 million from fiscal 'twenty four to fiscal 'twenty six if Boeing and Airbus meet their publicly shared targets for the <unk> hundred 20 family 737, Max eight.

James F. McCabe: <unk> hundred 50 and 787.

James F. McCabe: Turning to slide 19, I'll provide additional color on <unk> geared solutions business.

James F. McCabe: Which has been on a steady recovery path leveraging the triumph operating system.

James F. McCabe: This business is attractively positioned for a strong IP driven future.

James F. McCabe: Today geared solutions MRO business is driven predominantly by products developed in the 19 eighties, including the V 22 pylon conversion system.

James F. McCabe: And the FAA teams C&D airframe mounted accessory drives our aim ads.

Daniel J. Crowley: Looking ahead, we have five new gearbox applications that will transition to production over the next two years, including a new Saab Gripen AMAD, the Boeing T7A AMAD, several new gearboxes on the B-21, and a new AMAD for South Korea's new KF-21 aircraft. In fact, we received our first production gearbox orders for the KF-21 aircraft in the quarter.

James F. McCabe: Looking ahead, we have five new gearbox applications that will transition to production over the next two years.

James F. McCabe: Including our new Saab gripping.

James F. McCabe: The Boeing 700 AA med.

James F. McCabe: Several new gearboxes on the B 21.

James F. McCabe: And a new <unk> for South Korea, New K F. 'twenty one aircraft in fact, we received our first production gearbox orders for the K, a 21 aircraft in the quarter.

Daniel J. Crowley: As these aircraft transition to production, their deployment will generate spares and repairs volumes, ensuring that Geared Solutions participates across all phases of the product lifecycle, and renewing its backlog. They are also increasingly engaged in additive manufacturing to replace costly and long lead castings and in the electric vehicle space, as they are sought out for their expertise in the drivetrain, which connects electric motors to rotors and propellers.

As these aircraft transition to production their deployment will generate spares and repairs volumes.

James F. McCabe: Ensuring the geared solutions participates across all phases of the product lifecycle renewing geared solutions backlog.

James F. McCabe: They are also increasingly engaged in additive manufacturing to replace costly and long lead castings.

James F. McCabe: And in the electric vehicle space.

James F. McCabe: As they are sought out for their expertise and the drivetrain, which connects electric motors to rotors and propellers.

Daniel J. Crowley: Triumph is extremely active in new product innovation, particularly modular components and subsystems that have multi-platform applications and allow us to compete at the next level of the supply chain. This is important to expanding and maintaining our content on future aircraft and creates retrofit opportunities on legacy planes. Turning to slide 20, we provide a current snapshot of Triumph's innovation flywheel, including new gearboxes and fuel pumps.

James F. McCabe: Brian is extremely active and new product innovation, particularly modular components and sub systems that have multi platform application.

James F. McCabe: And allow us to compete at the next level of the supply chain.

James F. McCabe: This is important to expanding and maintaining our content on future aircrafts and creates retrofit opportunities on legacy planes.

James F. McCabe: Turning to slide 20, we provide a current snapshot of <unk> innovation flywheel.

James F. McCabe: Including new gearboxes fuel pumps.

Daniel J. Crowley: A new high-capacity thermal compressor, an entirely new product line of engine internal actuators, and digital engine controls featuring high speed cyber protected processes. These new product developments are financially sponsored by leading customers, and are a source of long-term shareholder value as our IP-based solutions address our customers' most difficult challenges. In summary, fiscal 2024 was a successful year for Triumph. We have positive momentum into fiscal 25 driven by aftermarket expansion, even with conservative assumptions on Boeing commercial rates. Building on the excellent performance of our flagship system and electronic controls and actuation businesses, we fully expect to have all four of our operating companies hitting on all cylinders as we progress through fiscal 25.

James F. McCabe: Our new high capacity thermal compressor.

James F. McCabe: An entirely new product line of engine internal actuators.

James F. McCabe: In digital engine controls featuring high speed cyber protected processors.

James F. McCabe: These new product developments are financially sponsored by leading customers and.

James F. McCabe: And are a source of long term shareholder value as our IP based solutions address our customers' most difficult challenges.

James F. McCabe: In summary fiscal 2024 with a successful year for trial.

James F. McCabe: We have positive momentum into fiscal 'twenty, five driven by our aftermarket expansion.

James F. McCabe: Even with conservative assumptions on the Boeing commercial rates.

James F. McCabe: Building on the excellent performance of our flagship system and electronic controls and actuation businesses.

James F. McCabe: We fully expect to have all four of our operating companies hitting on all cylinders as we progress through fiscal 'twenty five.

Daniel J. Crowley: We are taking necessary actions now to reduce our spend in the short term to offset the financial contribution of our divested third-party MRO business that will put us back on the trajectory we presented at the investor day, having accelerated our deleveraging by two-plus years. The medium and long-term fundamentals for Triumph remain strong and reflect what we believe is the start of the next aerospace and defense supercycle. The encouraging outlook for our industry, our unique and focused market position, and our commitment to performance.

James F. McCabe: We are taking necessary actions now to reduce our spend in the short term to offset the financial contribution of our divested third party MRO business that will put us back on the trajectory we presented at the Investor Day.

<unk> accelerated our deleveraging by two plus years.

James F. McCabe: The medium and long term fundamentals for triumph remains strong and reflect what we believe is the start of the next aerospace and defense Super cycle.

James F. McCabe: The encouraging outlook for our industry, our unique and focused market position and our commitment to performance.

Daniel J. Crowley: The company is well positioned for continued success. My team and I are excited about the future of our company. One with lower debt and interest carry, an improving credit outlook, growing backlog, and improving market demand. We're happy to take any questions you have now. Thank you. If you'd like to ask a question, please press star then 1 on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from the queue, please press star then 2.

James F. McCabe: This is well positioned for continued success.

James F. McCabe: My team and I are excited about the future for our company.

James F. McCabe: One with lower debt and interest carry and improving credit outlook growing backlog and.

James F. McCabe: In an improving market demand.

James F. McCabe: We're happy to take any questions you have now.

Speaker Change: Thank you well if you'd like to ask a question. Please press Star then one on your telephone keypad.

Speaker Change: My question has already been addressed you'd like to remove yourself from the queue. Please press Star then two.

Operator: Once again, that's farther than one if you have a question. And today's first question comes from David Strauss with Barclays. Please go ahead. Hi, good morning. Thanks for taking the question. This is actually Josh Korn on for David.

Speaker Change: Once again I'll start with I'm wondering if you have a question.

Speaker Change: And today's first question comes from David Strauss with Barclays. Please go ahead.

Josh Korn: I want to ask about the longer term forecast. We thought interest savings could be greater than what you lost with the divestiture. So why did the free cash flow conversion, or, I'm sorry, the free cash flow percent of sales forecast went down? Thanks.

Josh: Hi, Good morning, Thanks for taking the question. This is actually Josh <unk> on for David.

Josh: I wanted to ask about the longer term forecast.

Speaker Change: We thought interest savings it could be greater than what you lost with the divestiture.

Speaker Change: So why the free cash flow conversion or I'm, sorry, the free cash flow percentage of sales forecast wind down.

James F. McCabe: It's Jim McCabe here. In the multi-year, we conservatively assumed that we were going to keep the current first lien notes outstanding. They're 9% notes, and after the earlier announced $120 million additional paydown that'll happen this month, we'll be down to about $960 million. So we're gonna be opportunistic about capital structure improvements. They may occur, but we don't wanna lean forward on that.

Speaker Change: Sure Josh its Jim Mccabe here.

Speaker Change: The multi year, we conservatively assumes that we're going to keep the current first lien notes outstanding.

Speaker Change: Our 9% notes and after the earlier announced $120 million additional paydowns it'll happen this month will be down to about $960 million.

Speaker Change: So we're going to be opportunistic about capital structure improvements they may occur, but we don't want to lean forward on that we're trying to put a reasonable conservative assumption and moving forward on the balance sheet, especially for FY 'twenty five but I do believe over the multiyear period, there will be opportunities for improvement in cap structure, and we will see it in fact, I put that repurchase cycle slide because we are getting some of that.

James F. McCabe: We're trying to put a reasonable conservative assumption in moving forward on the balance sheet, especially for FY25. But I do believe over the multi-year period, there will be opportunities for improvement in the cap structure, and we will see it. In fact, I put that recursive cycle slide in because we're getting some of that feedback from investors too, saying, hey, you should be able to lower your cost of capital with your higher EBITDA, your lower leverage, and improved credit, and we're looking forward to doing that. Thank you. Just one for me.

Speaker Change: Back from investors to saying, Hey, you should be able to lower your cost of capital.

Speaker Change: The higher EBITDA lower leverage improved credit and we're looking forward to doing that.

Speaker Change: Thank you just one for me.

Operator: Thank you. And our next question today comes from Noah Poponak with Goldman Sachs. Please go ahead. Hey, good morning.

Speaker Change: Thank you and our next question today comes from Noah <unk> with Goldman Sachs. Please go ahead.

Noah: Hey, good morning.

Noah Poponak: Good morning.

Noah Poponak: Hey, Jim, just staying there. So at investor day, you had the fiscal 26 free cash flow 100 million target. Um, you know, the slide here, a billion for revenue times, uh, multiplied by 4%, the free cash flow margin is 56 million. So it's a pretty significant reduction. I hear what you just said there about how you know product support comes out, and then you're maybe layering in the interest expense reduction.

James F. McCabe: Hey, Jim just staying there so at the Investor Day, you had the fiscal 'twenty six free cash flow of 100 million target.

Speaker Change: The slide here 1 billion for our revenue times multiply by 4%.

Speaker Change: Free cash flow margin is $56 million, so it's pretty significant reduction.

Speaker Change: I hear what you just said there.

Speaker Change: How products work comes out and then layering in the interest expense reduction. So can you just break out or bridge the pieces from a 100 million to $50 million how much products part came out how much interest expense came out but could come out later, how much is just.

Noah Poponak: So Can you just break out or bridge the pieces from 100 million to 50 million? How much product support came out? How much interest expense came out but could come out later? How much is just the less profitability in interiors? What are the actual specific moving pieces from the 100 to the 50? Yeah, thanks, Noah.

Speaker Change: With less profitability in interiors, what are the actual specific moving pieces from the 100 to the 50.

James F. McCabe: The effect of the divestiture was to substantially reduce the leverage. It did substantially reduce debt as well. So interest goes down. But we did give up a business that was slightly above the midpoint of our margins. And it was higher growth because it's a commercial aftermarket, albeit third-party. But what we saw was a slowdown in sales growth. And we started from a lower base on EBITDA, but we got up to 20% just a year or two later, and the cash flow follows.

Speaker Change: Yes, thanks, though.

Speaker Change: The effect of the divestiture was to substantially reduce the leverage and it did substantially reduce debt as well so interest goes down.

Speaker Change: But we did give up a business that was slightly above the midpoint of our margins and it was higher growth because it's a commercial aftermarket, albeit third party.

Speaker Change: What we saw was a slowdown in the sales growth.

Speaker Change: And we started from a lower base on EBITDA, but we get up to 20% just a year or two later and the cash flow follows.

James F. McCabe: Working capital assumptions may be a little more conservative moving forward, given some of the uncertainty around the Boeing OEM rate, and we haven't assumed any of our improvements in capital structure. So, I don't have an exact reconciliation back to investor day, but I think what we traded was a little bit of growth deferral and margin expansion for a better portfolio that has higher IP content but much lower leverage, much lower credit, and we cleared the runway of any maturities until 2028.

Speaker Change: Working capital assumptions, maybe a little more conservative moving forward given some of the uncertainty around the Boeing OEM rates.

Speaker Change: And we Havent assumed.

Speaker Change: Any of our improvements and capital structure.

Speaker Change: So I don't have exact reconciliation back to the Investor day, but I think what we traded was a little bit.

Speaker Change: Growth deferral and margin expansion for a better portfolio that has higher IP content.

Speaker Change: But much lower leveraged much lower credit and we cleared the runway of any maturities until 2028.

James F. McCabe: I'll just add, Noah, that when we had investor day, Boeing was looking at a more robust year-over-year rate recovery. So, we've been conservative in our fiscal 25 and 26. [inaudible] orders drop, and we convert them to sales. Cash will follow. Okay. Yeah, I mean, that all makes sense. But the revenue, I guess the revenue adjusted for product support isn't terribly different from that 26. It's just a little hard to reconcile that.

Noah Poponak: Just add Noah that.

Speaker Change: When we had the Investor day Boeing was looking at more robust year over year rate recovery. So we've been conservative in our fiscal 'twenty five 'twenty six.

Speaker Change: Volume assumption as you noted, but the good news is book.

Speaker Change: Book to Bill and backlog are up and as those.

Orders drop and we convert them to sales cash will follow.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: That all makes sense, but the revenue I guess of revenue adjusted for product support isn't terribly different in that 'twenty six.

Speaker Change: It's just a little hard to reconcile all of that I guess on the working capital piece.

James F. McCabe: I guess on the working capital piece... the 25 numbers you provided EBITDA minus Cash Interest, Cash Tax, CapEx, and Pension. That doesn't get me to the 25. So it sounds like there's working capital use in 25 as well. I guess what's going on with working capital is that it's going to be maybe a larger source of cash than you were expecting. Because I understood it as you had some pretty meaningful working capital improvement initiatives.

Speaker Change: It.

Speaker Change: The 25 numbers you provided EBITDA minus cash interest cash tax capex pension.

Speaker Change: It doesn't get me to the 25% so it sounds like there is working capital use in 'twenty five as well I guess, what's going on with working capital.

Speaker Change: That.

Speaker Change: It's going to be maybe a larger source of cash than you were expecting because I understood. It as you had some pretty meaningful working capital improvement initiatives.

James F. McCabe: We do have working capital needs, and we have to protect the ramp, which we see coming, although it may slip several quarters from where we thought it was going to be. So the incoming inventory is still there, and we're going to be prudent about balancing that. I think a slide that might be helpful to you is slide 17, because what we did there was bridged the cash flow from FY24 on the bottom to show how it's increasing through 26 and what the major drivers are.

Speaker Change: Yes, we do have working capital needs and we have to protect the ramp which we see coming although it may be slipping several quarters from where we thought it was going to be so the incoming inventory still there.

Speaker Change: We're going to be prudent about balancing that I think a slightly it might be helpful to you as slide 17, because what we did there was we bridged.

Speaker Change: Cash flow from FY, 'twenty, four and the bottom to show, how it's increasing through 'twenty six and what the major drivers are so.

James F. McCabe: So you have the EBITDA expansion, which is that first large bar. It's offset by working capital usage, that's the orange bar, and pension funding. And then the interest savings is the blue bar. And there's a little bit of tax in there too.

Speaker Change: So you have the <unk> expansion, which is that first large bar, it's offset by working capital usage at the Orange bar and pension funding.

James F. McCabe: So those are the components of 24 to 26 cash. And, and we can give you more public information we can follow up on and point out to you the components. Okay, great.

Speaker Change: And then the interest savings is the Blue bar and there is a little bit of tax in there too. So those are the components of 24 to 26 cash and we could give you more public information that we could follow up with it and point out to you the components.

James F. McCabe: And then just last thing I want to ask you about. I know you gave I heard you give some some detail there on the interiors margin in the quarter and going forward, I guess. You know, the projection there was much higher for the quarter, and you provided that a month into the quarter when you reported your fiscal third quarter. I guess, how was that able to be so much lower than your forecast with a lot of the quarter already behind you? And can you just circle back to what the actual fundamental drivers of the performance are? No, no, there's no doubt of disappointment.

Speaker Change: Okay, Great and then just last thing I want to ask about.

Speaker Change: I know you gave I heard you give some some detail there on the interiors margin in the quarter and going forward I guess.

The projection there was much higher for the quarter and you provided a month into the quarter.

Speaker Change: When you reported your.

Speaker Change: Your fiscal third quarter, I guess, how is that able to be so much lower than your forecast with.

Speaker Change: A lot of the quarter already behind you and can you just circle back to what the actual fundamental drivers of the performance are.

Daniel J. Crowley: And we thought they'd do better on cash and earnings, but they did deliver the sales. So we've got a new leadership team in place there, intensively going through all of their costs, making sure that they're, you know, help working to fill the factory. You know, recall, there are two big factories down there in Zacatecas. One is empty.

No no there's no doubt disappointment and we thought that.

Speaker Change: They do better on cash earnings, but they did deliver the sales.

Speaker Change: So we've got a new leadership team in place there intent.

Intensively going through all of their cost, making sure that there.

Speaker Change: Yes.

Speaker Change: Working to fill the factory recall, there's two big factories down there and that could take US one is empty one is full running ducting.

Daniel J. Crowley: One is full running ducting. That's why we've been engaging with Boeing to fill that factory. That will help us with absorption. So, that's going to be a key lever for us returning that business. We know it makes money with volume.

Speaker Change: Why we have been engaging with Boeing to fill that factory that will help us with absorptions. So.

Speaker Change: That's going to be a.

Speaker Change: A key lever for us returning that business, we know it makes money.

Speaker Change: Volume.

Daniel J. Crowley: And we've done some things on the cost side as well here that we hadn't done before. Operationally, it's a really good plant, quality is outstanding, and on-time delivery is outstanding. But if we're going to get it back to where it was, we're going to have to do more on cost and more on volume. So yeah, disappointing financial results in the quarter. But I think the key signal is sales are coming up, and we're doing the actions required to address earnings and cash. Okay, thank you. Thank you. And our next question today comes from Peter J. Arment, with Baird. Please go ahead.

Speaker Change: And we've done some things on the cost side as well here that we hadn't done before operationally its a really good plan quality is outstanding on time deliveries and standing, but if we're going to get it back to where it was we're going to have to do more on cost and.

Speaker Change: And more on volume so, yes disappointing financial results in the quarter, but I think the key signal as sales are coming up and interiors and we're doing the actions required to address the earnings and cash.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you and our next question today comes from Peter J M.

Speaker Change: Armand with Baird. Please go ahead.

Peter J. Arment: Good morning, Dan and Jim. Hey Dan, on the $75 million in pricing that you highlighted for this year that starts to cut in, can you still highlight what's available in terms of new pricing opportunities for Triumph going forward? Yeah, it's a question we often get, and every new LTA that resets presents an opportunity for us. I'll remind you that we negotiate these LTAs outside of lead times because if we can't reach agreement with an OEM, they may choose to source this elsewhere. Sometimes they don't get around to negotiating, and there really is no alternative but to stick with the incumbent.

Speaker Change: Yes, good morning, Dan and Jim.

Hey, Dan on the $75 million in pricing that you highlighted for this year that starts to cut and where do you still highlight what's available in terms of new pricing opportunities for <unk> going forward.

Speaker Change: Yes, it's a question, we often get and every new LTA that resets presents an opportunity for us.

Speaker Change: Ill remind you that we negotiate these LTA is outside of lead times, because if we can't reach agreement.

With an OEM they may choose to source this elsewhere, sometimes they don't get around and negotiating it.

Speaker Change: And that really has no alternative but to stick with the incumbent.

Daniel J. Crowley: And we have gone through, you know, I'd say roughly half of our contracts. But the thing is, it doesn't end; it renews. As contracts extend because the average contract LTA duration is about five years, we have some 10 year ones, we have some three year ones, five years for the typical. And rather than viewing it as it runs out as a source of opportunity, it's something that we continue to schedule.

Speaker Change: And we have gone through I would say roughly half of our contracts.

Speaker Change: But the thing is it doesn't and it renews as contracts extend because the average contract LTA durations about five years, we have some tenure bonds. We have some three year one five years for the typical.

Speaker Change: Rather than viewing it as a.

Speaker Change: It runs out as a source of opportunity is something that we continue to.

Speaker Change: To schedule.

Daniel J. Crowley: This is something we review with the board. We have a list of all of our contracts and when the LTAs reset. And we don't always wait for the LTA to reset.

Speaker Change: It's something we review with the board.

Speaker Change: We have a list of all of our contracts and when Lta's reset and we don't always wait for the LTA reset there may be some reasons why we need to seek price ups in the middle of one of those longer term because of changes in underlying assumptions or our customers' rates have dropped or changed so that we.

Daniel J. Crowley: There may be some reasons why we need to see price increases in the middle of one of those longer terms because of changes in the underlying assumptions or customers' rates have dropped or changed so that we get another buy at the app. So although I would say we're about halfway through our initial complement of LTAs, there's more ahead, it doesn't end. That's helpful. And then, Jim, could you maybe just, from just a modeling perspective, you've given us the annual guidance, but how you're thinking, like maybe first half versus second half, whether you want to comment on the top line or just, you know, the pre-cash flow page. Sure, Peter.

Speaker Change: We get another bite at the Apple.

Speaker Change: Although I would say we're about halfway through our.

Speaker Change: The initial complement of LTA as Theres more ahead it doesn't end.

Speaker Change: That's helpful and then on <unk>.

Speaker Change: Jim could you maybe just.

Speaker Change: Just a modeling perspective, you've given us the annual guidance, but how you are thinking that maybe first half versus second half whether you whether you want to comment on the on the top line or just free cash flow cadence.

James F. McCabe: Yeah, I mentioned in my prepared remarks that the cash use in the first quarter, we build working capital every first quarter; it's going to be the same this year. And the cash use is currently in the $100 million range for the first quarter. But then we're going to be neutral in the second quarter and kind of cash generation in Q3, excuse me, in Q4, strong cash generation again. So the same profile we've seen in prior years, driven primarily by working capital, but some aftermarket demand is stronger at the end of the year as well.

Peter: Sure Peter.

James F. McCabe: Yes, I mentioned in my prepared remarks.

Speaker Change: Cash used in the first quarter, we build working capital every first quarter, it's going to be the same this year and the cash use is kind of being $100 million range for first quarter.

Speaker Change: But then we're going to be neutral in the second quarter and kind of cash generation in Q3 excuse me in Q4 strong cash generation against the same profile we've seen in prior years, driven primarily by working capital, but some aftermarket demand is stronger the end of the year as well.

James F. McCabe: So that's the cash profile, and it could improve if the Boeing rates are higher than our discounted 4K. In terms of the cadence, as I know people like to know the margin cadence in the system of support, in particular, because that's most of the business.

Speaker Change: So thats the cash profile and it could improve if the Boeing rates are higher than our discounted forecast.

Speaker Change: In terms of the cadence.

Speaker Change: I'd like to know the margin cadence.

In.

Speaker Change: The system to support in particular because thats.

Speaker Change: Most of the business.

James F. McCabe: Similar margins in the first quarter to last year, and similar expansion of margins quarter over quarter with 100 to 150 basis points of per quarter improvement with the fourth quarter being the strongest, but a continuous ramp through the year. So the Canadian business, and now you've got the history by quarter that we've posted previously. So you can see the comps, and they should be favorable moving forward, and with some, good strong aftermarket continuing, and with some luck on the Boeing rates, we could do better than our forecast. I appreciate it.

Speaker Change: Similar margins in the first quarter two last year.

And similar expansion in margins quarter over quarter.

Speaker Change: With 100, 150 basis point per quarter improvement with the fourth quarter being the strongest but continuous ramp through the year markets.

The Canadian business and now you've got the history by quarter that we posted previously so you can see the comps and they should be favorable moving forward.

Speaker Change: And with some.

Speaker Change: Good strong aftermarket continuing and with some luck on the Boeing rates, we could do better than our forecast.

Speaker Change: I appreciate it thanks guys.

James F. McCabe: Thanks, guys. Thank you. And our next question today comes from Seth Seifman with J.P. Morgan. Please go ahead. Thanks very much, and good morning.

Speaker Change: Thank you and our next question today comes from Scott <unk> with Jpmorgan. Please go ahead.

Scott Ledbetter: Hi, Thanks.

Speaker Change: Thanks, very much and good morning.

Seth Michael Seifman: I wanted to check in on the expectations for Boeing rates beyond 25 in the long-term plan, and I think in the response to Noah's question, it sounded like there was still some conservatism baked into fiscal 26. But in the prepared remarks, it talked about, you know, beyond this year, Boeing and Airbus getting to their published rates. So I'm just kind of curious what kind of 737 and 787 rates you have baked into that fiscal 26. Yeah, thanks. Thanks, Seth.

Speaker Change: Good morning.

Scott Ledbetter: Wanted to check in on.

Speaker Change: On the expectations for borrowing rates.

Speaker Change: Beyond 'twenty five.

Speaker Change: In the long term plan and I think in the response to <unk> question. It sounded like there were still some conservatism.

Speaker Change: Act into fiscal 'twenty six.

Speaker Change: But in the prepared remarks, but and talked about.

Speaker Change: And beyond this year, Boeing and Airbus getting to their published rates. So I'm just kind of curious what kind of.

Speaker Change: 737% and 787 rates you have baked into that fiscal 'twenty six.

Daniel J. Crowley: So there are three programs that we track closely with Boeing, the 787. They're about to drop a new schedule, and we've done some messaging in the media about what that might look like. The 777, they have dropped a new schedule called U-80, and we've digested that. That's a very modest change. In fact, I toured the 777 and 777X line in Seattle during the quarter, and it's very encouraging to see the level of build that's happening on that program. It really took me back.

Yes, Thanks Seth.

Speaker Change: So there is three.

Speaker Change: <unk> three programs that we track closely with Boeing 787.

They are about to drop a new schedule, we've done some messaging in the media about what that might look like.

Speaker Change: The triple seven they have dropped a new schedule called <unk> 80.

Speaker Change: And we have digested that that's a very.

Speaker Change: Modest change in fact I toured the.

Speaker Change: Triple seven 2% X line.

Speaker Change: It'll in the quarter and it's very encouraging to see the level of build happening on that program. It really took me back because.

Daniel J. Crowley: The program quickly shifted from building flight test aircraft to building deliverable aircraft. The 737, they have a new schedule that's coming out. We don't have it yet, so we have to go with our own best estimates on that. And, as mentioned, when we take all the bowling programs together, we adopt, I think, a higher degree of conservatism than we have in the past. It's about a $70 million revenue hit. Now, we may find that the 737 rates that are, let's say, in the low 30s in fiscal 24 that we're entering, we're forecasting to get into the 40s in fiscal 26 and hit 50 in fiscal 27. We'll see how that plays out.

Speaker Change: The program quickly shifted from building flight test aircraft to building deliver aircrafts.

Speaker Change: 737, they have a new schedule, that's coming out we don't have it yet so we have to go with our own best estimates.

Speaker Change: On that.

Speaker Change: As mentioned when we take all of the Boeing programs together.

And we adopt.

Speaker Change: A higher degree of conservatism that we have in the past.

Speaker Change: It's about a $70 million revenue hit now we may find that the.

Speaker Change: 737 rates that are let's say in the low thirties.

Speaker Change: In fiscal 'twenty for that we're entering.

Speaker Change: We are forecasting to get into the <unk> in fiscal 'twenty six.

Speaker Change: 50.

Speaker Change: In fiscal 2007.

Speaker Change: We will see how that.

Speaker Change: Plays out and we'll update all of our investors and analysts.

Daniel J. Crowley: And we'll update you, all of our investors and analysts, as we go. But I'd ask that you give us till next quarter to see these revised schedules on the 737 and 787 so that we can more accurately update our forecast. I also want to add that I spent a full day at the Boeing supplier conference in Seattle with Stephanie Pope and Issan Manoor and all of their leaders, the heads of every one of their programs.

Speaker Change: As we go but I would ask that you give us till next quarter to see these revised schedules on the 737 787, so that we can more accurately update our forecast.

Speaker Change: I also want to add that I spent a full day at the Boeing supplier conference.

Speaker Change: Out in Seattle with Stephanie Pope he saw in manure and all of their leaders. The heads of every one of their programs.

Daniel J. Crowley: And I listen to them describe in detail their plans to address the FAA concerns, the quality metrics that they are tracking that would provide the basis for raising their rates. And it's all very straightforward, very credible.

Speaker Change: And I listened to them describe in detail their plans to address the FAA concerns the quality metrics that they are tracking to that would provide the basis for raising their rates and it's all very straightforward very credible.

Daniel J. Crowley: It's the sorts of things that any reasonable person would look at and say, if you improve on those metrics, it makes sense that you're cleared to continue to increase production. So, you know, I have confidence in doing the right things. I started my morning this morning watching Michael Whitaker on the news talking about this very issue. And yeah, I think his comments were spot on, that it's really the beginning of a journey where Boeing really does track these metrics. And I'm also confident in the things they're doing with Spirit.

Speaker Change: Sorts of things that you do.

Speaker Change: Any reason reasonable person would look at and say if you improve on those metrics that makes sense.

Speaker Change: That you are clear to continue to increase production so.

Speaker Change: I have confidence they're doing the right things I started by morning. This morning watching Michael Whitaker.

Speaker Change: On the news talking about this very issue.

Speaker Change: And I think his comments, where we're spot on that it's really at the beginning.

Speaker Change: At journey, where Boeing really does track these.

Speaker Change: These these metrics and I'm also confident I should say the things they are doing with spirit. It was very encouraging.

Daniel J. Crowley: It was very encouraging to hear them report out the very detailed Process-Level Engagement, Improvement, and Tooling, Automation, and Workforce Engagement that's happening there. I know the folks on the phone here don't get to hear that.

Speaker Change: To hear them report out the very detailed.

Speaker Change: Process level engagement.

Speaker Change: Improvement in tooling automation and workforce engagement.

Speaker Change: <unk> I know the folks on the phone here don't get to hear that I do.

Daniel J. Crowley: I do, as a member of the Aerospace Quality Forum that Boeing has launched. I'm on monthly calls with the CEO of BCA, so I know what they're doing.

Speaker Change: As a member of the arrows, the aerospace quality form that.

Speaker Change: Boeing has launched them on monthly calls with the CEO of VCA.

Daniel J. Crowley: And I think once they get through that FAA gate, they'll be able to provide more clarity on the 737 demand. But the most important thing that I'd like you to take away from this call is that we've adopted conservative assumptions. We don't expect to have to come back to investors and analysts and say, hey, it's actually worse, and we've got a hole in our forecast. Okay, thank you. That's very helpful. That's very helpful, caller.

Speaker Change: I know I know, what they are doing and I think once they get through that FAA gate.

Speaker Change: There'll be able to provide more clarity on the 737 demand.

Speaker Change: But the most important thing that I would like you to takeaway from this call is that we've adopted conservative assumptions.

And we don't expect to have to come back to investors analysts and say hey, it's actually worsen and we've got a hole in our forecast.

Okay. Thank you that's very helpful. That's very helpful color.

Daniel J. Crowley: And then as a follow-up, just I apologize if I missed this during the prepared remarks. But in terms of the end market growth rates that are baked into the sales forecast for this year, can you run through this? The growth rates that are baked into the revenue top line, is that what you're asking? Yeah, in terms of the, you know, commercial OE aftermarket, you know, the military aftermarket. Sure. Hey, Seth, it's Jim.

Speaker Change: And then as a follow up just I apologize if I missed this during the prepared remarks, but in terms of the end market growth rates that are baked into the sales forecast.

For this year.

Speaker Change: Can you run through that.

Speaker Change: The growth rates that are baked into the revenue top line is that what you're asking in terms of the.

Speaker Change: Commercial OE aftermarket the military OE aftermarket.

James F. McCabe: We didn't give the details of exactly which markets are growing by exactly what rate, but I would tell you that the long-term trends, and certainly projected FY25, are continued growth in the aftermarket overall. And that's important because the aftermarket, even though it's a third of our sales, it's two-thirds of our profit, and therefore cash flow. So while OEM rates are important, two-thirds of our sales, they're only a third of our profitability. Hence strong aftermarket growth. And I think we will see continued improvement in the military as well, even on the OEM side as some of the production starts to ramp up. Okay, excellent. That's very helpful.

Sure Seth this is Jim we didn't give the details of exactly which markets are growing about exactly what rate, but I would tell you that the long term trends and certainly a trend in FY 'twenty five as continued growth in the aftermarket overall and thats important because aftermarket even though it's a third of our sales its two thirds of our profit.

Speaker Change: Therefore cash flow so while OEM rates are important two thirds of our sales there are only a third of our profitability so strong.

Speaker Change: Aftermarket growth.

Speaker Change: And I think we see continued improvement in military as well.

Speaker Change: Even on the OEM side of some of the production starts to ramp.

Speaker Change: Okay excellent that's very helpful. Thank you.

Speaker Change: Yes.

James F. McCabe: Thank you. And our next question today comes from Cai Von Irmer with TD Cowen. Please go ahead.

Speaker Change: And our next question today comes from Cai von <unk> with <unk>. Please go ahead.

Cai von Rumohr: Yes, thanks so much. So you mentioned a 75 million price hike. How much of that actually hits fiscal 25? And what is the net impact of that? Because, obviously, folks are giving you that because your inflation is higher.

Speaker Change: Yes. Thanks, so much so you mentioned $75 million price hike, how much of that actually hits.

Speaker Change: Fiscal 'twenty five and what is the net impact of that because obviously folks are giving you that because inflation is higher so how.

Daniel J. Crowley: So yeah, what are the, you know, how much of it hits? And what's the net impact? All of the gross savings, the price ups hit in the fiscal year, that's a fiscal year number. It's not a number that lays out over multiple years. There'll be further savings on price or further price ups that lay in over the out years. And then the net contributions reflected in our 300 basis point margin expansion. Do you have anything to add?

Speaker Change: How much of it hits in what's the net impact.

Speaker Change: All of the all of the gross savings the price ups hit in the fiscal year, that's a fiscal year number it's not a number that.

Speaker Change: Lays out over multiple years there'll be further savings on price or further price ups that.

Speaker Change: And over the out years and then the.

The net contribution is reflected in our 300 basis point margin expansion.

James F. McCabe: Jim anything to add yes.

James F. McCabe: Yeah, As Dan said, the 75 is the year over year price improvement from FY24 to FY25. As you alluded to, Cai, there is inflation that offsets some of that, but not all of it, and that coupled with the $40 million in annual price cuts across the reductions we've made is the reason we're able to expand margins from 12%. Transcripts provided by Transcription Outsourcing, LLC. Transcription Outsourcing, LLC

Dave: As Dave said that the 75 is the year over year price improvement from FY 'twenty to FY 'twenty five gross as you alluded to there are there is inflation that offset some of that but not all of that.

Speaker Change: And that coupled with the $440 million of annual price.

Speaker Change: Our cost reductions. We've made is the reason, we're able to expand margins from 12%.

Speaker Change: 15% largely all of the that can be accounted for by the cost decreases alone.

Speaker Change: But there are offsets to the price price is necessary, but it's also accretive to margins.

Speaker Change: Shown by that 300 basis point improvement.

Cai von Rumohr: Terrific. And then, you know, while you can't tell exactly yet where Boeing is going to take some of these rates, can you give us some color? Like, where you are today on the 787, the A350, excuse me, 787 and 737? And what's your inventory position? I mean, do you have lots of them sitting around?

Speaker Change: Terrific and then.

Speaker Change: While.

Speaker Change: You can't tell exactly yet where Boeing is going to take some of these rates can you give us some color like where are you today on the 780 <unk> hundred 50, excuse me 787 and 703 seven.

Speaker Change: What's your inventory position I think you have lots of them sitting around give us some color on that we can mix I guess in terms of where.

Speaker Change: You might be going.

Daniel J. Crowley: Give us some color on that, and we can make a guess in terms of where, you know, you might be going. So on 787, you know, our full-up rates were around six last year, and we were headed to 10 in fiscal 27. I think Boeing can still make that sort of rate, that the issues that they're working through now are all readily solvable. But in the short term, you know, there'll be a decrement, and that's why we've adopted that conservatism. On 737, again, Cai, it does vary by factory. And it varies based on the work in process and finished goods inventory levels. But think last year; we ended the year kind of in the low 30s.

Speaker Change: So on 787.

Speaker Change: Our full up rates were around six last year.

Speaker Change: And we were headed to 10 in fiscal 'twenty seven I think I think Boeing can still make that sort of rate.

Speaker Change: That the issues that they're working through narrow readily solvable.

Speaker Change: But in the short term there'll be a decrement and that's why we've adopted that conservatism.

Speaker Change: 703, seven again.

Speaker Change: It does vary by factory.

Speaker Change: And it varies based on the work in process and finished goods inventory levels, but think last year. We ended the year kind of in the low thirties.

Speaker Change: And we were headed into a year that's.

Speaker Change: The mid thirties.

Daniel J. Crowley: And we were headed into a year that's in the mid-30s, getting to about 50 in fiscal 27. That was the prior assumption. And now we're adopting, you know, conservatism around that number of, you know, on the order of 20 to 30%. I think that's more conservative than how it will play out.

Getting to about 50.

Speaker Change: 47 that was the prior assumption and now we're adopting conservatism around that number of on the order of 20% to 30%.

Daniel J. Crowley: But we've really listened to our investors and the analyst who say, you know, Triumph, you really need to have a plan that you can hit with confidence over the next two years. How it affects working capital is that we typically order parts six to 12 months in advance. So that's why we were ordering to that higher profile in the middle of last year, and that contributed to part of what I'll call the build and working capital that we reported over the last few quarters.

Speaker Change: I think thats more conservative and how it will play out, but we really listen to our investors and the analysts that says.

Speaker Change: Try if you really need to have a plan that you can hit with confidence over the next two years.

Speaker Change: How it affects working capital is and we typically order parts six to 12 months in advance so.

Speaker Change: That's why we were ordering to that higher profile and.

Speaker Change: In the middle of last year.

Speaker Change: And that contributes to part of the call date to build in working capital that we reported it over.

Speaker Change: Over the last few quarters now, we're putting the brakes on.

Daniel J. Crowley: Now we're putting our brakes on to slow that incoming material to reflect that more conservative assumption, while working with our suppliers to make sure that we can reverse that, and be up to the higher race once Bowen gets the green light from the FAA. Does that help?

Speaker Change: A slow that incoming material to reflect that more conservative assumption.

Speaker Change: While working with our suppliers to make sure that we can reverse that.

Speaker Change: Up to the higher rates once Boeing gets the green light.

Speaker Change: Does that help.

Cai von Rumohr: Yes, that is helpful. Thank you. And I guess my last one is, you know, it's a two-part question. What's the status of the hair suit regarding their acquisition of Stuart?

Speaker Change: Yes that is helpful. Thank you and.

Speaker Change: I guess my last one is.

Speaker Change: Two part question.

Speaker Change: What's the status of that.

Speaker Change: Her soon regarding their acquisition of Stewart.

Cai von Rumohr: And, you know, what's your answer? I mean, as we look at this cash flow, you're talking 56 million in free cash flow and 26. And so if we look at 25, 26, that's really not a huge cushion, you know, if something goes wrong, if we have sort of an exogenous event. Any thoughts about any additional actions you guys would take to kind of improve your flexibility more? So that's a multi-part question, but I'll take a shot at it. Okay, so there's really been no update on the H.E.R. litigation.

Speaker Change: <unk>.

Speaker Change: What's your answer I mean, as we look at this cash flow youre talking $56 million of free cash flow in 2006, and so if we look at 'twenty five 'twenty six that's really not a huge cushion if something goes wrong, if we have sort of an.

Speaker Change: An exogenous event any thoughts about any additional actions you guys would take to kind.

Speaker Change: Improve your flexibility more.

Speaker Change: So that's a multipart question, but I'll take a shot at it okay. So there's really no update on her litigation that's working its way through the legal process, we continue to vigorously defend ourselves.

Daniel J. Crowley: You know, that's working its way through the legal process. We continue to vigorously defend ourselves. As you recall, the fact is the buyer has been responsible for steward operations since the business was sold in July of 2022. And it was part of our larger portfolio transformation. And that sale agreement included terms that limit our potential exposure, as well as the amount claimed by DEHRS.

Daniel J. Crowley: So there's not really anything new here. I'll point you to the 10Q on how we lay that out. And we take our commitment to quality seriously. And when we've had issues in the past with Boeing, we've resolved those. This happens to be with DEHRS, not with Boeing, because the Structures business is a complex business, and it takes a level of experience and close attention to detail. But we've exited that business, and we're going to work to continue to cap off the legacy liabilities in the Structures area.

Speaker Change: As you recall. The fact is the buyer has been responsible for Stewart operations. Since the business was sold in July of 2022.

Speaker Change: And it was part of our larger portfolio transformation and that sale agreement included terms that limit our potential exposure as well as the amount claimed by her so there's not really anything new there I'll point you to the 10-Q on how we lay that out and we take our commitment to quality seriously.

Speaker Change: And when we've had issues in the past with Boeing we resolve those this happens to be with her not with Boeing to date.

Speaker Change: The business structures is a complex business and it takes a.

Speaker Change: A level of experience and close attention to detail.

Speaker Change: But we've exited that business and we're going to work to continue to cap off.

The legacy liabilities in the structures area, so, but we don't expect any.

Daniel J. Crowley: But we don't expect any, I'll call it, major financial impacts in our fiscal year from her litigation. That's the bottom line. And the last one about, you know, yeah, the flexibility. So you're saying if something adverse were to happen, how would we fund that? Yeah, Kai, just on financial flexibility.

I'll call it major financial impacts.

Speaker Change: In our fiscal year from her litigation Thats the bottom line.

Speaker Change: And the last one about the.

Speaker Change: The flexibility.

Speaker Change: So you are saying if something adverse were to happen how would we fund that.

James F. McCabe: We came down from 7.6 times to 4.9 times on leverage, and by 26, we're at 2.6 times. So we have room on the balance sheet should we ever need to raise more capital for any purpose, although we don't expect it for that purpose.

Speaker Change: On financial flexibility, we came down from seven six times to four nine times leverage and by 'twenty six we're at two six times. So we have room on the balance sheet should we ever need to raise more capital for any purposes, we don't expect it for that purpose.

James F. McCabe: And we don't have any maturities until 2028, and we have solid availability with positive cash flow with the conservative forecast. So we feel confident in our ability to fund any needs of the business, whether it's from the existing balance sheet or if we need to raise more capital.

Speaker Change: And we don't have any maturities until 2028.

Speaker Change: And we have solid availability with positive cash flow with the conservative forecast. So we feel confident in our ability to fund any needs of the business, whether it's from the existing balance sheet or if we need to raise more capital we could.

Speaker Change: Got it thank you.

Thank you.

Cai von Rumohr: Thank you. And our next question today comes from Myles Walton with Wolf Research. Please go ahead. Hey, good morning. You've got Lua Fedile on for Myles.

Speaker Change: And our next question today comes from Myles Walton with Wolfe Research. Please go ahead.

Speaker Change: Hey, good one you got little federal on for Myles.

Speaker Change: Good morning, good morning.

Myles Alexander Walton: Morning. So maybe if I just start with the 40 million cost reduction actions, is that something you expect the whole amount to sort of be a benefit in fiscal 25? That's the gross amount of the reductions. So year over year, net of inflation, you probably see something in the $25 to $30 million range of benefit.

Speaker Change #100: Maybe if I can just start with the 40 million cost reduction actions is that something you expect the whole amount to.

Speaker Change #101: So it would be a benefit in fiscal 'twenty five.

Speaker Change #102: That's the gross amount levels the reductions so year over year net of inflation, you would probably see something in the $25 million to $30 million range of benefit.

James F. McCabe: And we're targeting all of our SG&A and overhead, all of our fixed costs. So year over year, we're looking for a 40% $40 million gross reduction, which net of inflation is probably going to be $25 to $30 million. Okay, and are there, you know, you took $5 million in the quarter, any additional costs to think about to achieve this this year? Not, I think most of it has been actioned already that has severance associated with it, and the rest of it, a lot of it is third-party costs that we're able to reduce without having those restructuring charges. There could be some, but I don't anticipate anything large.

We're targeting all of our SG&A and overhead or fixed costs. So year over year, we're looking for a 40% $40 million gross reduction, which net of inflation is probably going to be the 25% to $30 million range.

Speaker Change #103: Okay and are there you took $5 million cost in the quarter any additional cost to think about to achieve this year.

I think most of it has been actions already that has severance associated with it and the rest of it a lot of it is third party costs that were able to reduce without having those restructuring charges, yes, there could be some but I don't anticipate anything large.

James F. McCabe: Yeah, I would look at that cost reduction number in tandem with the conservatism we've adopted on rates. That way, we don't have to go back and do another sweep through in cost because the rates have fallen further. We're watching the portals.

Speaker Change #103: I would look at that cost reduction number in tandem with the conservatism we've adopted on rates.

Speaker Change #103: That way, we don't have to go back and do another sweep through cost because the rates have fallen further we're watching the portals, where boeing loads their demand.

Daniel J. Crowley: We're Boeing loads their demands very closely to make sure that our assumptions that we base those cost outs on are holding, and so far, they are. In fact, some of the early inputs that Boeing's putting in the portal are better than our conservative assumptions, but we're going to stick to those until the formal schedules are released. Okay, and I know this was asked earlier, but I guess I still wasn't fully clear on just sort of the interiors and exactly what happened.

Speaker Change #103: Very closely to make sure that.

Speaker Change #103: Our assumptions that we based those cost outs on our holding and so far they are in fact some of the early <unk>.

Speaker Change #103: What's that Boeing is putting the portal or better than our conservative assumptions, but we're going to stick to those until the formal schedules are released.

Myles Alexander Walton: Sales weren't too far off. So just to understand if some of the higher-margin sales didn't drop through? Was there something on the cost side that completely surprised from the mid to high team down to, you know, sort of 2%?

Speaker Change #104: Okay and I know this just asked earlier, but I guess I still wasn't fully clear on just sort of interiors and exactly what happened sales werent too far off so just to understand it was some of these higher margin sales didn't drop through was there something on the cost side that completely yet.

Speaker Change #104: Came off bounds it surprised from the.

Speaker Change #105: Mid to high teens downhole, yes, sorry, 2%.

Daniel J. Crowley: So they had they were in, we were transferring work from our Spokane plant down to Zacatecas in Mexicali. And you know, some of their estimating on the cost of moving that work was off, and therefore their predictions of earnings and cash were off. Now we've fixed that, and we'll have accurate EACs going forward for the interiors business. And we've also gone in and established those hedges that I mentioned and adopted

Speaker Change #106: So they had they were in.

Speaker Change #107: We're transferring work from our Spokane plant down to Zach could take us in Mexicali.

Speaker Change #107: And some of their estimating on the cost of moving at work was off and therefore their predictions of earnings and cash was off now we fixed that and.

Speaker Change #107: We will have.

Speaker Change #107: Accurate eac's going forward for.

Speaker Change #107: For the interior business and we've also gone in and establish those hedges that I mentioned and adopted.

Daniel J. Crowley: Alternate Sourcing Actions. Those things we would have liked to have cut in sooner. Unknown Speaker, The Big Game Hunters, The Big Game Hunters, The Big Game Hunters, and we did it when the volumes were higher.

Speaker Change #107: Alternate sourcing actions.

Speaker Change #107: Those things we would have liked to have cut in sooner.

Speaker Change #107: And they didn't in fact, so we saw a continued drag on margins and cash so it's a bit of a timing thing I think I'd like to take away from an interiors is we know how to get 20% out of that business. We've been there before.

Speaker Change #107: And we've done it when the volumes were higher.

Daniel J. Crowley: We have a clear path to higher rates once Boeing gets past the current challenges. We're using the time now to negotiate increased scope on programs like 787, not just with Boeing, but with Spirit. KHI and others, Airbus on the A220. So we're doing all the underlying actions to get back to where we used to be. And with the cost advantages that we have in operating in Mexico, the strong quality, and strong on-time delivery, it is one of the largest factories in the world that produces these types of insulation and ducting products.

Speaker Change #107: We have a clear path to higher rates once Boeing gets past the current challenges we are using the time now to.

Speaker Change #107: To negotiate increased scope on programs like 787, not just with Boeing but with spirit the.

Speaker Change #107: <unk> and others Airbus on the <unk> hundred 20, so we're doing all of the underlying actions too.

Speaker Change #107: Get back to where we used to be and with the cost advantages that we have in operating in Mexico. The strong quality strong on time delivery.

Speaker Change #107: It is one of the largest factories in the world that produces these type of installation of deducting problem products.

Speaker Change #107: We're confident we can get back to where we were.

Daniel J. Crowley: We're confident we can get back to where we were. All right. Thank you very much. And our next question today comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker Change #108: Alright, Thank you very much.

Speaker Change #109: Thank you.

Speaker Change #110: And our next question today comes from Sheila <unk>.

Speaker Change #111: <unk> Jefferies. Please go ahead.

Sheila Karin Kahyaoglu: Hey, good morning, guys. I have a few questions. If you don't mind, just to play cleanup here. Dan, you mentioned you're being conservative on the max rates and you're going to 30% cut internally versus where you thought you'd be producing, which I think is in the mid-30s. So, or the high-30s.

Speaker Change #112: Thanks, Good morning, guys.

Speaker Change #113: A few questions.

Speaker Change #113: All the.

Okay.

One up here.

Speaker Change #114: Dan you mentioned, you're being conservative on the Maxwell former Bellingham.

Speaker Change #113: Internally.

Paul: Paul when you thought you'd be predicting which I think is a little more body. So our high 30 so.

Daniel J. Crowley: So, does that imply your guidance is in 30 a month or so on the map? And on the working capital item for free cash flow, are you assuming 20 million of usage in fiscal 25, and is that all max in 787. So I'll start on the rates, and Jim can start on the working capital. The rates, and I know it's tricky for us because, unlike Spirit, which has a largely discrete product in the fuselage, we've got 7 different factories that are supporting it at different build rates, and because Boeing historically, they've allowed us to run at rates that are higher than their consumption rate because they don't want the supply chain to go idle and then turn around and ramp back up to 40 to 50.

Speaker Change #116: So does that imply your guidance assumes 40, a month or so on the Max.

Speaker Change #117: And on the working capital item for free cash flow are you assuming.

Speaker Change #118: $20 million of intact.

Speaker Change #119: And Thats about 25, and hope that all macro.

Speaker Change #120: So I'll start on the rates to Jim hit the working capital.

Speaker Change #121: The rate and I know, it's tricky for us because unlike spirit that is.

<unk> discrete product in the few slides we've got.

Speaker Change #121: Seven different factories that are supporting it.

Speaker Change #121: A different build rates.

Speaker Change #121: Because Boeing is.

Speaker Change #121: Historically, they've allowed us to run at rates that are higher than their consumption rate because they don't want the supply chain to go idle and then turnaround and ramp back up to 40% to 50. So we're waiting to see what they are proposing by commodity byproduct.

Daniel J. Crowley: So we're waiting to see what they're proposing by commodity by product, but it's not 30% across the board lower rates on the max. For some of the factories, we are assuming in our fiscal 25 guidance about a 20% reduction, not not a 30%, but it does, it does vary. You know, once we get clarity from Boeing, we'll provide it to you and to others so you can see how we handicapped it. Did we handicap it right?

Speaker Change #121: But it's not 30% across the board lower rates on the Max some of the factories, we are assuming in our fiscal 'twenty five guidance about a 20% reduction not not a 30, but.

Daniel J. Crowley: But I think we've done the right thing, Jim. And Sheila, on the working capital, there's an assumed usage in the $20 to $25 million range for the full year. And that is largely driven by having inventory and lower shipment rates forecast. So we have to still maintain that inventory for our contracts, and we'll be ready for rate ramps, but that's part of the reason for some working capital usage. Yeah, just a little bit more color here, Sheila.

It does it does vary.

Speaker Change #121: Once we get clarity from Boeing will provide it to you and to others. So you can see how we handicap to handicap it right, but I think we've we've done the right things chip and Sheila on the working capital.

Speaker Change #121: There is an assumed usage in the $20 million to $25 million range for the full year and that is largely driven by.

Speaker Change #121: Having inventory and lower shipment rates forecast. So we have to still maintain the inventory for our contracts and we will be ready for rate ramps, but that's part of the reason for some working capital usage, yes, just to just a little bit more color there Sheila.

James F. McCabe: It's a negotiated process, product by product, with Boeing because some products lend themselves to rate cuts without affecting the supply chain and Triumph's workforce more than others. We can pull back the throttles in some plants more readily, and we partner that decision with Boeing so that we don't cause problems later, whether they're supply or price as the ramp comes back. So we need to get through this process. They need to give clarity to the supply chain. We need to sit down, go through commodity by commodity, and then we'll be in a position to say, here's what we're building at. But I've given you that today. You know, the sort of aggregate numbers.

Speaker Change #121: Its a negotiated process product by product with Boeing because some products lend themselves to.

Speaker Change #121: Our rate cuts without implication to the supply chain and triumphs workforce more than others, we can pull back the throttles in some plants more readily and.

We partner that decision with Boeing so that we don't cause problems later, whether their supply or price.

Speaker Change #121: The ramp comes back so we need to get through this process they need to give clarity to the supply chain, we need to sit down and go through commodity by commodity and then we'll be in a position to say here's what we're building at but I've given you today.

Speaker Change #121: Sort of aggregate numbers.

Daniel J. Crowley: And then maybe on the margin for fiscal 25, when you talk about 300 basis points, you mentioned 25 net productivity. So does that imply the net price is about 1% off the 6% gross price? I don't have the exact number for the contribution, but there's a positive contribution net of inflation and material costs, in particular.

Speaker Change #121: And then maybe on the margin for fiscal 'twenty five.

Speaker Change #122: Can you talk about 300 basis points, you mentioned 25 net productivity.

Speaker Change #123: Does that imply net price is about 1%, 6% gross price.

Don't have the exact number for the contribution but there is a positive contribution net of the inflation in material cost in particular.

James F. McCabe: That sounds in the range of reasonableness for an assumption. Okay, and then last question, just to level the playing field. So on the long-term guidance, is there an organic top line and margin change outside of the divestiture of product support? I know there really isn't.

Speaker Change #124: That sounds in the range of reasonableness for an assumption.

Speaker Change #125: Okay, and then last question just to level set everyone. So on the long term guidance.

Speaker Change #126: Is there an organic top line and margin change outside of the divestiture of products support.

Speaker Change #126: So.

Daniel J. Crowley: Yeah, we're still striving towards the same financial objectives, and our goal is to be 20% or better on EBITDA margins. And the profile to get there has been set back slightly because of TPS.

Speaker Change #127: No there really isn't yet we're still driving towards the same financial objectives, and our goal is to be at 20% or better on EBITDA margins.

Speaker Change #127: The profile to get there.

Speaker Change #127: It's been set back slightly because of TPS.

Daniel J. Crowley: But we're still on a very good trajectory to hit 15 this year. Again, we think that's a conservative assumption, but that's our number. We're going to work like hell to beat it, but that's the guidance for the year. And then the profile to get back to 20 or on to achieve 20 is laid out in Jim's.

Speaker Change #127: But we're still on a very good trajectory to hit 15. This year again, we think that's a conservative assumption, but thats.

Speaker Change #127: Our number we're sticking to it.

Speaker Change #127: And we're going to work like Hell to beat it but thats the guidance for the year and then the profile to get back to two.

Speaker Change #127: <unk> to 'twenty.

Speaker Change #128: To achieve 20 is laid out and Jim slides.

Speaker Change #129: Okay. Thank you.

Speaker Change #128: <unk>.

Daniel J. Crowley: Okay, thank you. Thank you. And our next question today comes from Sam Strasicker with True Securities. Please go ahead. Hi, good morning, guys. I'm on behalf of Mike Ciarmoli this morning.

Speaker Change #130: And our next question today comes from Sam <unk>.

Speaker Change #131: Charles Securities. Please go ahead.

Speaker Change #132: Hi, Good morning, guys on for Mike This morning.

Sam Strasicker: Good morning. You pointed to potential improvement within the military OEM following a little bit of weakness this quarter. Could you potentially provide any detail on kind of maybe the timing of that next year in the cadence? I think we're going to have to do that offline in the sense that there are different programs that contribute to the military recovery, and we only gave sort of aggregated numbers and then the new wins in that space.

Speaker Change #133: Alright, good morning, you pointed to.

Speaker Change #134: Potential improvement within military OEM forward, a little bit of weakness this quarter could you potentially provide any detail on kind of maybe the timing of that next year and the cadence.

Sam Strasicker: So we may have to take that as action. But if you go back to the backlog chart, it shows the rate changes that we have. I mentioned that programs six through 10 in our backlog are all military programs, and the rates are generally stable. F-35, what I'm hearing on that is that they are expected to go to 20 a month. GAO will support that once they finish some of their software updates. That will be a tailwind for us right now.

Speaker Change #135: I think we're going to have to do that offline in the sense that there is there is different programs that contribute to the military recovery and we only gave sort of aggregated numbers.

Speaker Change #135: And then the new wins in that space. So we may have to take that action, but if you go back to the backlog chart.

And it shows the rate changes that we have I mentioned that program six through 10 in our backlog.

Speaker Change #135: Our all military programs and they are all.

The rates are generally stable F 35.

Speaker Change #135: What I am hearing on that is that they are.

Speaker Change #135: Expected to go to 20, a month Gao's would support that once they finish some of their software updates.

Daniel J. Crowley: We're looking for additional scope on the F-35. We're in the public about our pursuit of them. The Power Thermal Management System, which is a large subsystem, provides cooling on the aircraft as well as APU functionality and engine starter generators.

Speaker Change #135: That will be a tailwind for US right now we're looking for additional scope on the F 35.

Speaker Change #135: We are in the public.

Speaker Change #135: Our pursuit of their.

Speaker Change #135: Power thermal management system, which is a large sub system.

Speaker Change #135: It provides cooling on the aircraft as well as.

Speaker Change #135: Apu functionality and engine starter generators so.

Daniel J. Crowley: And then the ramp-up of programs that are transitioning from development to production. We mentioned the Saab, T7A, and KF21. They all have their own timelines for recovery. So I think it'd be better off if we provided some summary of the individual components of the military recovery rather than answer it off the cuff. So that's what I try to help them with.

Speaker Change #135: And then the ramp up of programs that are transitioning from development to production, we mentioned the Saab <unk>.

Speaker Change #135: K F 'twenty one they all have their own timeline.

Speaker Change #135: For recovery, So I think if I it would be better off if we provide.

Speaker Change #135: Some summary of the individual components of the military recovery rather than.

Answered off the cuff.

Speaker Change #136: So thats why its very helpful. Thank you.

Speaker Change #137: Thanks, Dan.

Daniel J. Crowley: Thank you guys. Thanks, Sam. Thank you. And our final question today comes from... I apologize. It comes from Ron Epstein. Actually, it looks like we lost Mr. Epstein's connection. So at this point, we're going to close the question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect your lines and have a wonderful day. BF-WATCH TV 2021

Daniel J. Crowley: Thank you.

Speaker Change #138: Final question today comes from.

Speaker Change #139: I apologize it comes from Ron Epstein.

Speaker Change #140: And it looks like we will I'll ask Mr. I'll close connection. So at this point, we're going to close the question and answer session and today's conference call. Thank you for attending today's presentation.

Speaker Change #140: Now disconnect your lines and have a wonderful day.

Speaker Change #140: Okay.

Speaker Change #140: [music].