Q1 2025 Triumph Group Inc Earnings Call
Speaker Change: and a number of other people. So, I'm going to go ahead and start this. I'm going to start this by saying that I'm a non-profit, non-profit organization. I'm not a non-profit. I'm a non-profit. I'm a nonprofit. I'm a non-profit. I'm a non-profit. I'm a non-profit. I'm a non-profit. I'm a non-profit.
Speaker Change: Good day and welcome to the Triumph Group First Quarter Fiscal Year 2025 Results Conference call.
Speaker Change: All participants will be in listen-only mode. Should 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.
Unknown Executive: Pardon me, everyone. We're having a technical issue. I will get the speakers ready in just one moment. Thank you for your patience.
Speaker Change: Pardon me everyone, we're having a technical issue. I will get the speakers ready in just one moment. Thank you for your patience.
Speaker Change: © BF-WATCH TV 2021
Speaker Change: Ladies and gentlemen, thank you for your patience. Apologies for the technical issues. I will now introduce Mr. Thomas Quigley to begin the call. Please go ahead.
Thomas Quigley: Thank you. Good morning and welcome to our first quarter fiscal 2025 earnings call. Today I'm joined by Dan Crowley, the company's chairman, president, chief executive officer, and Jim McCabe, senior vice president and chief financial officer of Triumph.
Thomas Quigley: Certain statements on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Unknown Executive: 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 the forward-looking statement.
Sam: These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause Triumph's actual results, performance, achievements to be materially different from any expected future results, performance, or achievements expressed or implied in the forward-looking statements. Sam, I'll turn it over to you.
Sam: Turning to page 3, I'll highlight key accomplishments from the quarter.
Sam: We expanded margins on price increases and favorable sales mix.
Unknown Executive: We were rewarded with recent credit rating upgrades from both Moody's and S&P. Turning to page four, you can see that aftermarket sales, including spares and repairs from our systems to support segment is trending up in support of both commercial and military and market, and the emergent 787 landing gear overhaul cycle, and the oldest member of the fleet are hitting 12 years now, necessitating the removal and overhaul of all landing gear actuation, essentially all of which Triumph supplies, benefits, our sales mix, and financial, Triumph remains on track to achieve our overall annual net sales, adjusted EBITDA, and cash flow guidance.
Sam: Turning to page four, you can see that aftermarket sales including spares and repairs from our systems to support segment is trending up in support of both commercial and military end markets.
Sam: As we mentioned last quarter, the 787 landing gear overhaul cycle is 12 years, and the oldest member of the fleet are hitting 12 years now, necessitating the removal and overhaul of all landing gear actuation, essentially all of which Triumph supplies.
Sam: Key wins for the quarter include contracts for the F-18 E&F fuel pump overhaul, the T-7A gearbox, and the Kratos XQ-58 landing gear, which benefit three of our four Triumph operating companies where we are positioned on key growth platforms.
Sam: We took actions in the quarter to right-size the interiors business consistent with a delayed max ramp while we continue our commercial discussions with Boeing.
Sam: Triumph remains on track to achieve our overall annual net sales, adjusted EBITDA, and cash flow guidance.
Sam: When adjusting for a legacy environmental legal contingency, we recognize in the corner our operating income and EPS guidance also remain unchanged.
Sam: Jim will provide more color on our outlook later in the call.
Unknown Executive: I'm also pleased with our ability to execute our pivot to systems and IP-based aftermarket. This is the first quarter that Triumph has operated as a pure play systems and IP-based aftermarket and interiors company. As reported, the product support divestiture served as a catalyst to allow us to significantly and rapidly de-lever the business.
Speaker Change: I'm also pleased with our ability to execute our pivot to systems and IP based aftermarket. This is the first quarter that Triumph has operated as a pure play systems IP based aftermarket and interiors company following the divestiture of our product support business.
Unknown Executive: We remain well positioned to capitalize on strong demand from the aftermarket in the short term and higher OEM bill rates over the next 18 months. Triumph is ready for the expected A&E industry supercycle, based on our diversification of customers and end markets as we gain share with new products, MRO services, and Takeaways. Thanks, Dan, and good morning, everyone.
Jim McCabe: We remain well positioned to capitalize on strong demand from the aftermarket in the short term and higher OEM bill rates over the next 18 months.
Jim McCabe: Thanks Dan and good morning everyone. Q1 results succeeded our plan on all key financial metrics and Triumph remains on track to achieve our full year objectives.
Unknown Executive: Q1 results exceeded our plan on all key financial metrics, and Triumph remains on track to achieve our full year objective. QO is a good quarter for Triumph, with the strength of our proprietary aftermarket revenue and systems in support, more than offsetting the temporary OEM rate deferrals and supply chain. We continue to lower our debt and improve our credit, as evidenced by the ratings upgrades Triumph received from both S&P and Moody's in the quarter.
Jim McCabe: QO is a good quarter for Triumph with the strength of our proprietary aftermarket revenue and systems and support more than offsetting the temporary OEM rate deferrals and supply chain challenges.
Jim McCabe: We continue to lower our debt and improve our credit, as evidenced by the ratings upgrades Triumph received from both S&P and Moody's in the quarter.
Unknown Executive: Our consolidated first quarter results are on page five and show solid growth in revenue, operating income, and margins compared to last year. Adjusted Operating Income of $17 million was up $3 million or 23%, adjusted operating margin of 6% was up 80 basis points from about 5% last year, and $25 million adjusted EBITDA represents a 9% adjusted EBITDA margin. Our aftermarket revenue, well only a third of our revenue, delivers 73% of our profit in the quarter. Our growing installed base of proprietary products drives our aftermarket revenue and profit growth. A legal contingency's loss of $7.5 million related to a legacy environmental matter
Jim McCabe: And $25 million of adjusted EBITDA represents a 9% adjusted EBITDA margin.
Jim McCabe: Our growing installed base of proprietary products drives our aftermarket revenue and profit growth.
Jim McCabe: We had three non-GAAP adjustments this quarter. Illegal contingencies loss of $7.5 million related to legacy environmental matter.
Unknown Executive: Restructuring costs of $1.6 million as we continue to reduce our fixed costs, and a debt extinguishment loss of $5.4 million from the debt repayment in the quarter. Although not an adjustment, our Q1 legal costs to manage certain legacy lost contingencies were about $1.8 million higher than planned. Our Q1 commercial revenue is on page 6. Commercial aftermarket revenue was up $15 million, or 43%, largely on legacy 737 spares and repairs. We also had an IP sale of about $5 million in the quarter compared to $3 million in the prior year period.
Jim McCabe: Restructuring costs of $1.6 million as we continue to reduce our fixed costs, and a debt extinguishment loss of $5.4 million from the debt repayment in the quarter.
Jim McCabe: Although not an adjustment, our Q1 legal costs to manage certain legacy lost contingencies were about $1.8 million higher than planned.
Jim McCabe: Commercial aftermarket revenue was up $15 million, or 43%, largely on Legacy 737 spares and repairs.
Unknown Executive: Commercial OEM revenue of $119 million was up slightly as 787 revenue increases more than offset revenue declines on Bell 429, Boeing 737, and other commercial platforms. Military aftermarket revenue of $41 million was up $4 million or 11% over Q1 last year, which was offset by military OEM declines. TH53K continues to be an important military program for us in both OEM and aftermarket revenue. Cash flow is on page 8. For Q1, as expected, we built working capital and had free cash use of $113 million. This included $8 million of capital expenditures, up from $6 million last year. This cash use is driven by seasonally higher working capital.
Jim McCabe: Commercial OEM revenue of $119 million was up slightly as 787 revenue increases, more than Ofsted revenue declines on Bell 429, Boeing 737, and other commercial platforms.
Jim McCabe: Military aftermarket revenue of $41 million was up $4 million or 11% over Q1 last year, which was offset military OEM decline.
Unknown Executive: Timing of the OEM rate ramp and Supply Chain Shortages, all of which are expected to improve in the second half of the year. Cash use in the quarter also included approximately $2 million of accelerated interest payments for the debt redemption.
Unknown Executive: $1.6 billion of cash restructuring costs and about $5 million of cash taxes related to the sale of product support in Q4 last year. On page 9, you can see our net debt and liquidity. During the quarter, we redeemed $120 million of the first lien notes, reducing them from $1.079 billion to $959 million.
Jim McCabe: On page 9 is our net debt and liquidity.
Unknown Executive: At the end of the quarter, net debt was $821 million, up from your end as planned to support the Seasonal Working Capital Bill. Quiddity totaled $203 million, including $153 million of cash, and is sufficient for our planned working capital needs. Our combined debt reduction across fiscal 24 and 25 years to date will yield $55 million of annual interest savings.
Jim McCabe: At the end of the quarter, net debt was $821 million, up from year-end as planned to support the seasonal working capital build.
Unknown Executive: And our remaining notes are not due until 2028. Page 10 is our FY25 revenue, EBITDA, and Free Cash Flow Guidance, which is unchanged from last quarter. We continue to expect net sales of approximately $1.2 billion. We continue to expect approximately $182 million of EBITDA for a 15% EBITDA margin. For free cash flow, we continue to expect $10 to $25 million of generation for FY25.
Jim McCabe: For free cash flow, we continue to expect $10 to $25 million of generation for FY25.
Unknown Executive: Looking ahead to Q2, in addition to normal seasonality, we anticipate lower sales than last year in our Geared Solutions business, primarily as a result of leak order deferrals and supplier delays on the P22 program. In the second half of the year, EARS expects increases on these programs, as well as the T7a as it transitions from development to production and higher aftermarket. Pre-cash use in the second quarter is expected to be in the range of $70 to $90 million, driven by a $43 million interest payment, seasonality, and working capital timing due to the OEM rate ramp.
Unknown Executive: We forecast rapid working capital burn-off in the second half of the year, consistent with our full-year free cash flow guidance. In summary, first quarter results exceeded our plan and included revenue growth, operating income growth, and operating margin expansion over last year. We remain on track to achieve our full year financial objectives. Now, I'll turn the call back to Dan. Dan?
Jim McCabe: In summary, first quarter results exceeded our plan and included revenue growth, operating income growth, and operating margin expansion over last year. We will remain on track to achieve our full year financial objectives.
Dan: Thanks, Jim. We just returned from the 2024 Farnborough International Air Show, and our positive outlook on long-term demand was reinforced by the level of traffic there and OEM projections. The OEMs expressed optimism about planned increases in aircraft sales and production levels, which are expected to ramp through the end of the calendar 2024 and into 2025. The air show was a very productive event for Triumph. We conducted over 180 meetings and showcased our new proprietary products, such as engine actuation, cockpit indicator panels, and new cyber-protected digital avionics, which are at the heart of multiple product development efforts from engine controls to displays. I'll touch on three takeaways from Cronbrook.
Speaker Change: The OEMs expressed optimism about planned increases in aircraft sales and production levels, which are expected to ramp through the end of the calendar 2024 and into 2025.
Unknown Executive: First, it's clear that our customers need Triumph. We are problem solvers and have innovative engineers. We heard you keep doing what you're doing, and we'd like you to help us. We're here.
Speaker Change: First, it's clear that our customers need Triumph. We are problem solvers and have innovative engineers. We heard, keep doing what you're doing, and we'd like you to help us here.
Unknown Executive: You know, we solve our customers' hardest challenges. Second, while delays in commercial transport rate increases are impacting much of the industry, the OEMs are signaling increasing rates later this year, and Triumph will benefit from any increases given our conservative assumptions. Boeing and Airbus' commercial transport backlog rose 25% since December of 2020.
Speaker Change: You know, we solve our customers' hardest challenges.
Speaker Change: Boeing and Airbus commercial transport backlog rose 25% since December of 2020. The airlines need these new aircraft.
Unknown Executive: The airlines need these new aircraft, but while the aftermarket for both spares and repairs is growing and expected to remain strong through the end of the decade, according to leading aircraft less, and third, our alignment with our customers has never been better. Our customer collaboration is accelerating, as evidenced by customer-funded initiatives ranging from landing gear system designs to additively manufactured gearboxes, thermal system solutions, and new actuator and engine control products. Triumph continues to seek out and solve our customers' greatest challenges.
Speaker Change: And third, our alignment with our customers has never been better. Our customer collaboration is accelerating, as evidenced by customer-funded initiatives ranging from landing gear systems designs to additively manufactured gearboxes, thermal system solutions, and new actuator and engine control products.
Speaker Change: Triumph continues to seek out and solve our customers greatest challenges.
Unknown Executive: Total backlog continues to rise 11% year over year to $1.9 billion, even as we push out some narrow-body orders. Backlog is stable sequentially as a result of delayed orders which occurred in the first quarter of fiscal 24, but have not yet hit the FY25 order book. Commercial single aisle backlog was flat as Airbus A320 family increases were offset by declines in the 737 and A220.
Speaker Change: Total backlog continues to rise up 11% year-over-year to 1.9 billion even as we push out some narrow-body orders.
Speaker Change: backlog of stable sequentially as a result of delayed orders which occurred in first quarter of fiscal 24
Speaker Change: Commercial single aisle backlog was flat as Airbus A320 family increases were offset by declines in the 737 and A220.
Unknown Executive: However, twin aisle backlog is up 42% year over year, driven in particular by the 787 and 777 orders spanning OEM and aftermarket. Triumph's growth in the commercial segment will accelerate as rate increases at Airbus and Boeing are realized in the near future. Turning to page 12, new wins for the quarter include an FA18 Afterburner Fuel Pump MRO Award.
Speaker Change: However, Twin Isle backlog is up 42% year-over-year, driven in particular by the 787 and 777 orders spanning OEM and aftermarket.
Speaker Change: Turning to page 12, new wins for the quarter include an FAA teen afterburner, fuel pump, MRO award.
Unknown Executive: We're also supporting the new GE Classified Military Engine Test Stand with multiple components. Additionally, GE has awarded us their T7A F404 gearbox, and Kratos has won Triumph, a landing gear design and build program for the Kratos XQ-58 Valkyrie, a collaborative combat aircraft variant. Turning to page 13, I want to acknowledge our now second-largest customer, GE Aerospace, and the breadth of our growing engagement with them. Over the last four years, our GE revenues have grown at a 23% CAGR, nearly doubling. We have a strong portfolio of legacy products for GE, including gearboxes, RotoCraft Fuel Controls, Fyder Fuel Pumps, and Heat Exchangers.
Speaker Change: We're also supporting the new GE Classified Military Engine Test Stand with multiple components.
Speaker Change: Additionally, GE awarded us their T7A F404 gearbox, and Kratos awarded Triumph a landing gear design and build program for the Kratos XQ-58 Valkyrie, a collaborative combat aircraft variant.
Speaker Change: Turning to page 13, I want to acknowledge our now second-largest customer, GE Aerospace.
Speaker Change: and the breadth of our growing engagement with them.
Speaker Change: We have a strong portfolio of legacy products for GE, including gearboxes, Rotocraft fuel controls, Fyder fuel pumps, and heat exchangers, but more importantly, we have a growing portfolio of new applications, which have led to the development of new products and entirely new product lines.
Unknown Executive: But more importantly, we have a growing portfolio of new applications, which have led to the development of new products and entirely new product lines. For example, on GE's new military engines, both adaptive cycle and a classified derivative engine. Triumph has 10x the content on these new engines versus prior GE military engines, which will be tailwinds as these engines transition to production. GE recognized Triumph as both a valued partner and a problem solver.
Speaker Change: Triumph has 10x the content on these new engines versus prior GE military engines.
Unknown Executive: We are positioned to grow alongside them in the years to come in the emerging electric vehicle market. We've had several wins in the quarter, including a thermal package on the Dorsha Aircraft D38 Eco and a funded preliminary design effort for a Tier 1 electric regional jet gearbox.
Unknown Executive: We continue to track commercial transport segment performance, including aircraft orders and backlog, while new aircraft orders due to date are lagging behind prior years. Total aircraft order backlog stands at more than 15,000 of 25% from 2020. It represents 12 years of production backlog at current rates, underpinning the rising pressure for further production rate increases.
Unknown Executive: I look forward to working with both the new Boeing commercial CEO, Stephanie Pope, and Boeing CEO, Kelly Wartburg, who I know from my past industry roles. Triumph is fully supporting Boeing's quality and safety management system initiatives and is closely monitoring their supplier portal for aircraft rate changes. On the development front, we were very encouraged that Boeing's 777X program is moving forward to the formal stage of flight testing with the FAA. Triumph has over 700,000 parts on this new advanced aircraft, which I saw in number during my recent visit to Boeing's final assembly plant.
Speaker Change: On the development front, we were very encouraged that Boeing's 777X program is moving forward to the formal stage of flight testing with the FAA.
Speaker Change: Triumph has over 700,000 content on this new advanced aircraft which I saw in number during my recent visit to Boeing's final assembly plant.
Unknown Executive: With a backlog of over 500 aircraft prior to certification, this is expected to be a very successful program. Before I wrap up, I want to update you on a post-quarter closed cyber event. On July 27th, we identified a cybersecurity incident involving unauthorized access to certain of our IT systems.
Speaker Change: With a backlog of over 500 aircraft prior to certification, this is expected to be a very successful program.
Speaker Change: Before I wrap up, I want to update you on a post-quarter closed cyber event.
Unknown Executive: The company immediately took steps designed to contain the incident and activated our incident response plan to support continued operations. Consistent with the responses of other firms, we also notified appropriate law enforcement authorities and continue to work closely with cyber security experts and legal counsel to protect the company's interests and our customers. We've substantially restored the effect of the systems and resumed normal operation. We believe that the security incident has not had and is not reasonably likely to have a material impact on the company's financial results.
Unknown Executive: In summary, we're off to a solid start for the year, and Q1 puts us on track to achieve our fiscal 2025 objective. The path to our year-end guidance is expected to be non-linear, but the improvement in customer demand in the second half of the year gives us confidence in our outlook. Aftermarket sales continue to power the company through the near-term OEM headwind. We expect to expand margins and improve cash quarter over quarter as we further realize benefits from our improved business profile and initiatives.
Speaker Change: In summary, we're off to a solid start for the year, and Q1 puts us on track to achieve our fiscal 2025 objectives.
Speaker Change: The path to our year-end guidance is expected to be non-linear, but the improvement in customer demand in the second half of the year gives us confidence in our outlook.
Unknown Executive: The encouraging long-term outlook for our industry, our unique and focused market position, and commitment to performance have us well positioned for continued success. Triumph will continue to hustle while we wait for the follow-through on customer demand, while strengthening our balance sheet, streamlining our business, and investing in our product portfolio to enhance our shareholder value. We're happy to answer any questions that you've got at this time.
Speaker Change: The encouraging long-term outlook for our industry, our unique and focused markets position, and commitment to performance has us well positioned for continued success.
Speaker Change: My team and I are closely aligned with our customers as we work through the near-term issues facing full recovery of OEM demand, and we're excited about our new products on future aircraft and engines that will enhance our long-term value creation.
Speaker Change: Triumph will continue to hustle while we wait for the follow-through on customer demand while strengthening our balance sheet, streamlining our business, and investing in our product portfolio to enhance our shareholder value.
Speaker Change: We're happy to answer any questions that you've got at this time.
Unknown Executive: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Peter Arment of Baird.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
Speaker Change: Our first question comes from Peter Arment of Baird.
Peter Arment: Please go ahead. Good morning, Dan. Morning, Dan, Jim, Tom.
Unknown Executive: Again, can you, you know, maybe walk us through, you've got you're gonna have a heavy usage of free cash flow in the first half, but you're expected to, obviously, turn positive. What are the kinds of programs that you can kind of point to? Is it the 787 work, obviously, and the aftermarket power in the company that kind of gives you that positive swing in the back half of the year? And what kind of rate do you expect to kind of be at on the 737 max? I know that's critical for your interior's profit.
Peter Arment: You're expected to obviously turn positive, you know, what are the kind of the programs that you can kind of point to is it the 787 work, obviously the aftermarkets power in the company that kind of...
Unknown Executive: Yeah, first of all, when I look at the business, I look at it through this lens of the operating companies. We have strong performance out of our actuation business, it's hitting its marks as well as engine controls. And so, you know, they're performing independent of the max, you know, we're seeing strong sales growth out of that as well. Our geared solutions business is down slightly, and we know why that is predominantly the LEAP program, as well as the wrap-up on the Bell 429.
Speaker Change: Yeah, first of all, when I look at the business, I look at it through this lens of the operating companies. Transcribed by https://otter.ai
Speaker Change: And so, you know, they're performing independent of the MACs. We're seeing strong sales growth out of that as well. Our Geared Solutions business is down slightly, and we know why that is. It's predominantly the LEAP program.
Unknown Executive: They have new programs that are transitioning into production in the second half of the year that will benefit them, like the T7A. Interiors are definitely down. They're producing it on the order of 12 to 14 a month now on the max because we delivered a lot of inventory. It's physically a large product to store. As that rate comes back at the end of our fiscal year, which I predict to be Q4, we're going to see that business have an upswing in volume.
Unknown Executive: And, you know, overall, it's really the mix of MRO, military, and commercial all coming back strong in the second half of the year that contributes to that. Jim? Yeah, it's a diversified working capital challenge, and it's across multiple programs, not just the big Boeing programs, but LEAP, Gearboxes, and B-22, where we have some supply chain challenges, are all contributing to the temporary working capital surge, but we see a line of sight for all those to be liquidated in the second half of the year.
Speaker Change: Yeah, it's a diversified working capital challenge, and it's across multiple programs, not just the big Boeing programs, but LEAP, Gearboxes, and B-22, where we have some supply chain challenges.
Speaker Change: are all contributing to the temporary working capital surge. But we see a line of sight for all those to liquidate in the second half of the year.
Unknown Executive: Okay, and then just as a clarification, Jim, you mentioned your I think an interest cost payment in the second quarter. It seemed larger than, you know, either. And what the run rate is, or could you maybe just walk us through a little bit because you did pay down the debt and you know, kind of the interest rate on the quarterly interest costs. You know, kind of trending below your guidance for the year, so maybe you could just update us there.
Speaker Change: that what the run rate is or could you maybe just walk us through a little bit because you did pay down the debt and you know kind of the interest rate in the in the quarter interest cost was
Unknown Executive: True, Peter. It's a semi-annual interest payment on September 15th. It's about $43 million. And that's just on the remaining bonds that are outstanding. There are $959 million that are outstanding. Could you re-ask the second party question? Yeah, just say it so that...
Speaker Change: Sure, Peter. It's a semi-annual interest payment, September 15th. It's about $43 million. And that's just on the remaining bonds that are outstanding. There's $959 million that are out there.
Unknown Executive: Yeah, just so that the guidance of 95 to 90 million on cash interest still holds with that. Yeah, absolutely. That's correct.
Speaker Change: Yeah, just so that in that guidance of 95 to 90 million on cash interest still holds with that number.
David Strauss: The next question comes from David Strauss of BART. Please go ahead. That's Barclays. Yeah, correct.
Speaker Change: Thanks. Thanks, guys.
Speaker Change: The next question comes from David Strauss of BART.
Unknown Executive: Yes, that is correct. Thanks, Maureen.
Speaker Change: Please go ahead.
Unknown Executive: A follow-up question on interiors. What kind of volume do you need on the MAX to get to, you know, positive EV adaptability in interiors, and when would you expect to get there this year?
Unknown Executive: Interiors Let me first break down the interiors into three different businesses: insulation is the largest, followed by cap composite, and then cabin components, installation. We assumed a build rate this year of 160 chip sets. So you can do the math, you know, it's 1213.
Speaker Change: Interiors is, let me first break down the interiors, there's three different businesses. Insulation is the largest, followed by composites and then cabin components.
Speaker Change: Installation, we assumed a build rate this year of 160 shipsets, so you can do the math, you know, it's 1213, and the portals is at that same kind of rate.
Unknown Executive: And the portals are at that same kind of rate. Composites were producing at a higher volume, closer to 30 a month, because composites are, you know, these smaller products that can be packaged and nested, and we didn't really build ahead on composites. Plus, we're backstopping a number of suppliers that aren't performing on that. Some of that work is dual source, and then cabin components follow composites.
Speaker Change: Composites, we're producing at a higher volume, closer to 30 a month.
Speaker Change: So some of that work is dual-sourced.
Unknown Executive: So the real challenge is getting insulation rates back up. And we've been profitable in this business at rates that are on the order of 30 a month. So to go from call it 13 a month to 30, we'll cross that threshold.
Speaker Change: So, to go from, call it, 13 a month to 30, you know, we'll cross that threshold and if Boeing can get to 40, as they've advertised next year.
Unknown Executive: And if Boeing can get to 40 as they've advertised next year, it will be solidly profitable. But we're not just relying on the rates, right? We've taken advantage of this bathtub in production to take out significant costs. The operations are performing well, independent of the rate. They're 99% on time delivery and similar quality.
Speaker Change: It will be solidly profitable, but we're not just relying on the rates. All right, we've taken advantage of this.
Speaker Change: The operations are performing well, independent of the rate. They're 99% on time delivery and similar quality. We're moving some work between the two plants, Mexicali, Zacatecas.
Unknown Executive: We're moving some work between the two plants in Mexicali, Zacatecas. We've hosted Boeing on-site teams who are very impressed with what we're doing. We're picking up 787 work from competitors, so we're using the time to improve the performance of the business. And it looks like the peso is turning in our direction. It was really impactful on us last year. We still have work to do on supplier input costs, but that's been a big driver for that business. But we're going to deal with that head on.
Speaker Change: We've hosted Boeing on-site teams who are very impressed with what we're doing. We're picking up 787 work.
Speaker Change: to to improve the performance of the business. And it looks like the peso is turning in our direction. It was really impactful to us last year. We still have work to do on supplier input costs. That's been a big driver for that business. But we're going to deal with that head on.
Unknown Executive: Okay, I guess, do you assume positive EBITDA for the, you know, within the $182 million EBITDA guidance for the year? Are you assuming that Interior is positive for the full year?
Speaker Change: Okay, I guess, do you do you assume positive EBITDA for the, you know, within the $182 million EBITDA guidance for the year, are you assuming that Interior is positive for the full year?
Unknown Executive: It's a modest contributor at this point, and still, again, about 10% of sales. So it's not a big swinger on Triumph's full results. Okay.
Speaker Change: It's a modest contributor at this point and still again about 10% of sales so it's not a big swinger on Triumph.
Unknown Executive: Okay, and then Jim, I guess another follow-up on the prior question about interest expenses, the you know, the income statement amount, I think the quarter was 19, you've now reduced, you know, your debt balance. How do we get the 95 million for the full year?
Speaker Change: Okay, and and then
Speaker Change: Jim, I guess another follow up on the prior question, on interest expenses, the, you know, the income statement amount, I think the quarter was 19, you've now reduced, you know, your debt balance, how do we get the 95 million for the full year?
Unknown Executive: Yes, there's a little bit of favorable effects that run through that line as well. But the interest expense itself on a cash basis is just 959 million at nine.
Speaker Change: Yes, there's a little bit of favorable effects that runs through that line as well, but the interest expense itself on a cash basis is just the $959 million at 9%.
Unknown Executive: Okay, thanks very much.
Michael Ciarmoli: The next question comes from Michael Ciarmoli from Chewist Securities. Please go ahead.
Unknown Executive: Hey morning, guys. Thanks for taking the questions.
Speaker Change: Hey, morning, guys. Thanks for taking the questions. Morning. You know, Dan, I think you said, you know, you guys exceeded the plan on all metrics. I mean, was that, was the $7 million loss in interiors part of the plan? I mean, it seemed like that would have been worse.
Unknown Executive: You know, Dan, I think you said you guys exceeded the plan on all metrics. I mean, was that a $7 million loss in interiors part of the plan? I mean, it seemed like that would have been worse.
Unknown Executive: And then What, what's, I mean, how do we, the confidence level, I guess, in the second half here, I mean, what do you really, is this solely dependent on the max ramping and this kind of chatter or reports the past, you know, 24 to 48 hours of them redesigning that door plug, you know, is there any risk to ramping up that production that you guys see and kind of just trying to get a sense of the confidence level in this back half of the year here?
Speaker Change: What, what's, I mean, how do we, the confidence level, I guess, in the second half here, I mean, what.
Speaker Change: Do you really, is this solely dependent on the max ramping and this kind of chatter?
Unknown Executive: Yeah, first of all, thanks, Michael. When I say we exceeded the plan, it was on a consolidated basis, which speaks to the strength of our Systems and Support Business, particularly Actuation, had a very good Q1, and they offset the softness in interiors, which was below plan, to your point. As far as the max rates, yeah, we're counting on rates to come back at the back end of the year. If they materially don't, then we'll come back, and we'll update investors.
Speaker Change: Yeah, first of all, thanks, Michael. When I say we exceeded a plan, it was on a consolidated basis, which speaks to the strength of our
Unknown Executive: But we've done such an amount of work on diversification, but a single program is only about 12% of our revenue. So should the rate remain flat for longer than we'd like, then the impact is not going to be huge.
Speaker Change: That single program is only about 12% of our revenue, so should the rate remain flat for longer than we'd like, then the impact's not going to be huge. As far as the door plug, listen, if Boeing...
Unknown Executive: As far as the door plug, listen, Boeing; Boeing is doing the right thing on this. I've been tracking this as an insider on all their quality calls. You know, certainly it was a disappointment, you know, they came clean on the handoff issues they had related to the fastener installation. I was one of the first people to ask, you know, hey, why can't this door plug be designed such that it's retained under flight pressures and doesn't require fasteners; they're only there as a secondary backup. And when I told that to senior Boeing leaders, they said that it And This was two months ago.
Speaker Change: You know, certainly it was a disappointment. You know, they came clean on the handoff issues they had related to the fastener installation. You know, I was one of the first people to ask, you know, hey, why can't this door plug be designed?
Unknown Executive: So it's something they've been working on, it's not something that may have just come public in the last day or two, but it's something that Boeing is already ahead of the game on. So I'm confident they'll get it fixed. You know, it's a disappointment. It did impact a lot of us in the supply chain, but it will get fixed. And based on what I'm seeing within Boeing and all the work that they've done, I attended their supplier conference in Q1. They're fully committed to improving their performance and not stepping up the rate until the metrics justify doing so.
Speaker Change: It's a disappointment. It did impact a lot of us in the supply chain, but it will get fixed. And based on what I'm seeing within Boeing and all the work that they've done, I attended their supplier conference in Q1. They're fully committed to...
Speaker Change: Improving their performance and not stepping up the rate until the metrics justify doing so.
Unknown Executive: got it perfect, and then just, um Dan, I think you called out that XQ-58 Landing Gear Award. Can you, is that a sizable or material win for you guys? You know, any color on that? I know there's a lot of movement with these collaborative combat kind of aircraft and plans.
Unknown Executive: I don't think it's going to be a huge contract. You know, the thing about our landing gear business is we go in and help crime, OEMs that don't have any expertise but... You know, they may attempt to do the landing gear on their own. But then they look at crash survivalness, the ability to operate in off-nominal conditions, you know, heavy landings, crosswinds. And suddenly it's not so easy.
Unknown Executive: And so we have a team in Seattle that designs these full test rigs. I was just up there looking at the landing gear that they've designed for the beta eVTOL aircraft, and they were running deployment tests on that. It's a very slick design, very low cost, and low weight, given that that's important on eVTOL. On the XQ-58, we met with Eric and his team at the air show. It was a very good meeting. They know what they're good at, we know what we're good at, and they're glad to have us as a partner.
Eric: Eric and his team at the air show. Very good meeting. They know what they're good at. We know what we're good at. And they're glad to have us as a partner. You're going to see us do that on other aircraft up to a certain weight class.
Unknown Executive: You're going to see us do that on other aircraft up to a certain weight class. The large landing gear was not really in that space, but these small to medium-class aircraft were becoming a strong leader.
Unknown Executive: Got it. Perfect. Thanks, guys. I'll jump back in the queue. Yeah. Thanks, Mike.
Myles Walton: The next question comes from Myles Walton of Wolfe Research. Please go ahead.
Speaker Change: The next question comes from Myles Walton of Wolf Research. Please go ahead.
Unknown Executive: Thanks. Good morning, Jim. How did I think 2Q was looked at as a neutral from a pre-cash flow perspective and now 70 to 90 and, obviously, was burning hotter in the first quarter? Can you point to specifically why that deterioration and, I guess, why the confidence that you'll still recover to the same point by the end of the year?
Miles Walton: Thanks, good morning. Jim, how did, I think 2Q was looked at as a neutral from a pre-cash flow perspective and now 70 to 90 and obviously was burning hotter in the first quarter.
Miles Walton: Can you point to specifically why that deterioration and I guess why the confidence that you'll still recover to the same point by the end of the year?
Unknown Executive: I know that consensus out there was around zero. We had a little bit of cash usage in our AOP, and unfortunately, it's grown because of the rates. The timing of the rate ramp, essentially, is one driver. Supply chain challenges on certain military programs are another driver. The LEAP schedule for deliveries is another driver. Those are three of the big ones.
Speaker Change: I know that consensus out there was around zero. We had a little bit of cash usage in our AOP, and unfortunately, it's grown because of the timing of the rate ramp. Essentially, it's one driver.
Unknown Executive: We're continuing to support our customers to make sure we have the inventory available. As we've said before, we have longer lead times than the frozen window for customer orders. So that inventory will get used. We see a lot of that liquidation in the second half of the year. It's a diversified mix of programs that are impacted, which means that we have high confidence that a lot of those will liquidate, and a few of them won't. It's not going to be deadly to the overall forecast.
Speaker Change: It's a diversified mix of programs that are impacted, which means that we have high confidence that a lot of those will liquidate, and if a few of them don't, it's not going to be deadly to the overall forecast.
Unknown Executive: So it's really working capital-driven, it's timing, but it's the right thing to do to support our customers. And remember, 73% of our profit in Q1 was aftermarket. So it's really about the aftermarket. Even though it's a third of sales, that's going to continue to drive cash flow and profitability. It has near-term opportunities we're going to seize on, and we're continuing to build the longer-term OEM deliveries that feed things like the 787 landing gear overhaul. And maybe 12 years later, but all these programs are going to pay off in the aftermarket in addition to the OEM contribution, which is less in the aftermarket.
Speaker Change: So it's really working capital-driven, it's timing, but it's the right thing to do to support our customers. And remember, 73% of our profit in Q1 was aftermarket, so it's really about the aftermarket. Even though it's a third of sales, that's going to continue to drive the cash flow and profitability. It has near-term opportunities we're going to seize on.
Unknown Executive: Okay, yeah, I think consensus is neutral because I thought on the last call you pointed to neutral in the second quarter, followed by generation in the third and fourth, if there's something that was lost.
Speaker Change: Okay, yeah, I think consensus is neutral because I thought on the last call you pointed to neutral in the second quarter followed by generation in the third and fourth, but maybe.
Unknown Executive: In the rain, in the rain, Joe, so our planning was just a modest use in Q2. It really is just a timing issue. It's not as if we bought the wrong parts and misjudged the market. You know, we typically order these long-lead parts six to 12 months in advance of need. So if Boeing changes their demand, which they have the right to do inside the lead time, then you can get some overshoot on working capital. And that's what we're seeing in Q2.
Unknown Executive: Okay, and Dan, you've gone through, and Jim, you've gone through this long simplification process through divestitures, and we're still struggling to generate material for cash flow. Is it questioning for you whether you have to do more from a portfolio perspective? Or is there a point where you think about strategic alternatives for the whole for the benefit of the company or shareholders? Fair question, Myles.
Unknown Executive: Fair question, Myles. It's something we do every quarter when we meet with the board, and we look at all the options that are available to the company. So it's not a new topic. I have a chart that I used with the board that goes back to when we first started looking at each opco as well as the overall company. So we're always open to different outcomes that would enhance shareholder value, but we do feel that what we've Consolidated the company down to, through consolidations and divestitures, is the right asset base. You know, certainly, interiors is one we're going to continue to look at.
Miles Walton: Fair question, Myles. It's something every quarter we meet with the board and we look at all options that are available to the company, so it's not a new topic.
Speaker Change: In fact, I have a chart that I use with the board that goes back to when we first started looking at each opco as well as the overall company. So we're always open to different outcomes that would enhance shareholder value. But we do feel that what we've
Speaker Change: consolidated the company down to through consolidations and divestitures is the right asset base you know certainly interiors is one we're going to continue to look at but we we need to restore the rates on that we've got some pricing negotiations that are still pending with our customers
Unknown Executive: But we need to restore the rates on that. We've got some pricing negotiations that are still pending with our customers. But I like the business that we have, actuation, engine controls, gearboxes, and interiors under the right conditions of volume.
Speaker Change: But I like the business that we have, actuation, engine controls, gearboxes, and interiors under the right conditions of volume.
Unknown Executive: And we'd like to get our leverage down. We've reduced it from 10 times to 4.9 times with the TPS divestiture this year. We're on the path to reduce it to 3.5, and we have a line of sight over our planning horizon to get it down to 2. And then we can start thinking differently. But right now, we're comfortable with our balance sheet structure, and we don't see a need to do any major divestitures to maintain our leverage and cash flow.
Speaker Change: We have a line of sight over our planning horizon to get it down to two, and then we can start thinking differently, but right now we're comfortable with our balance sheet structure.
Speaker Change: And we don't see a need to do any major divestitures to maintain our leverage and cash flow.
Unknown Executive: Okay. All right. Thank you. The next one.
Speaker Change: Okay. All right. Thank you.
Seth Seifman: The next question comes from Seth Seifman of J.P. Morgan. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Please go ahead.
Speaker Change: Good morning, this is Rocco on process.
Unknown Executive: I'm going to want to play that back. Have we started to see de-stalking from Boeing? Yes. So we did lower our backlog consistent with the pushout of max orders in the quarter. Even though the backlog was still up, I think 8% in aggregate despite that. Boeing is, you know, we look at their delivery and they're starting to get close to shipping their finished goods aircraft; that's coming down in a pretty steady fashion.
Rocco: So, we did lower our...
Rocco: Our backlog, consistent with the push out of max orders in the quarter.
Unknown Executive: So this will pivot from, I call it, depressed build rates to higher build rates, you know, over the next year. But we did take action on the backlog and expect that to reverse. Did that address your question? Or did I miss it?
Unknown Executive: Yes, then just the Airbus rate ramp delay, is that impacting Triumph? So modestly, you know, it's such a robust rate, you know, already, we would have liked to see it head north. You know, in our fiscal 25, we're building the A320X family about 50 a month, and we're headed 60 next year and then into the 70s thereafter. And so it's really just a question of the profile to get there because of the huge backlog of orders, but from a supplier point of view, it's not impacted. Thank you. Ben, are you concerned by the formation of the V-22 following the accident a few months ago? And should that weigh on defense results for the year?
Rocco: and we were headed 60 next year and then into the 70s thereafter and so it's really just a question of the profile to get there.
Rocco: So, it's one of our top, you know, three or four programs, but it's a steady enough build rate that we're meeting all of our, I'll call it, you know, economic production quantity thresholds.
Rocco: and we're able to support them in the aftermarket as well as Jim mentioned so you know yes it's impacting them I know they've talked about it because they've set a very high bar for their output because of the huge backlog of orders but from a supplier point of view it's not impacting us
Ben: Great, thank you. Ben, are you concerned by the surrounding of the V-22 following the accident a few months ago and should that weigh on defense results for the year?
Speaker Change: are a long way from fielding. So, you know, we expect the demand for those actuators to continue and, and we're confident in the quality of the hardware we're shipping.
Speaker Change: Great, thank you.
Speaker Change: The next question comes from Ron Epstein of Bank of America.
Speaker Change: Please go ahead.
Unknown Executive: Hey, good morning.
Speaker Change: Hey guys, can you hear me okay? Yeah. Hey Ron. Hey, good morning.
Ron Epstein: What are you guys factoring into your outlook for the possibility of the strike? I mean, it seems like a pretty high probability. The question is just how long is the strike? How are you thinking about that and how is that kind of factored into your outlook?
Speaker Change: So when we adopted our bill rate for the year, we call it past three of our annual operating plan, we assume demand on the order of 30 a month for most of our factories, as I mentioned.
Speaker Change: Now, if it were to be protracted, yeah, you know, the rates might be adjusted, but...
Speaker Change: And they send signals in the portal to reduce the rate. We know how to de-staff. We know how to furlough people, reduce overtime, and put notice out to our suppliers. So the mechanisms are in place, but I don't think we're going to have any to do it.
Speaker Change: Got it, got it. And can you speak to a little bit, you mentioned it, it's on one of your slides.
Speaker Change: What are you doing there, and who's it for, and so on and so forth? Yeah, well, in preparing for our remarks today, I wanted to talk about the name of the prime, because it's the prime you would know.
Speaker Change: They didn't want us to mention it, but let me just describe the application. So, today, a lot of regional jets are turboprops, and they have gearboxes that connect.
Speaker Change: You know, let's say a Pratt-Windy, you know, P-56 engine to the propeller.
Unknown Executive: In fact, they become the critical link between Clean Sheet Aircraft that takes advantage of this new architecture. You don't have a traditional engine. You don't have an AMAD that's providing an accessory engine, a gearbox that drives, things like hydraulic pumps.
Speaker Change: And the prop, which spins at a lower rate, so the gearboxes step down that rotational speed, whether it's a prop or it's a helicopter rotor.
Speaker Change: Clean Sheet Aircraft that takes advantage of this new architecture.
Speaker Change: While still maintaining, I'll call it an airframe that looks similar, but underneath the skin, it's got a place for the batteries to reside.
Speaker Change: It's got our gearboxes, it's got these new electric motors, it's got new engine controls, because you don't need to worry about fuel pressure. It's got more electric actuation, so you don't need a hydraulic system.
Speaker Change: You don't have a traditional engine, you don't have an AMAD that's providing an accessory engine gearbox that drives things like hydraulic pumps.
Speaker Change: So all those subsystem mark textures have changed, and they have funded us to lead the design of that gearbox, so look for Triumph to continue to support those kind of applications, even as aircraft electrification advances.
Unknown Executive: Now the XQ-58.
Speaker Change: I'd say it's a very broad set of applications, not particularly on large programs in terms of production volume, but a very good mix of platforms.
Unknown Executive: Got it. All right. Thank you.
Speaker Change: Thanks.
Speaker Change: Essentially, that looks like you're running 12 to 14 for the entire year.
Unknown Executive: Okay, I'll start with 787. So we adopted an assumption that is between 53 and 63 ship sets this year. They are between five and eight per month, with our Clemens site that builds actuation, landing gear actuation components at that higher rate. So it's a little bit of a head scratcher, you know, in terms of how strong it is.
Speaker Change: that are in the system from Boeing for us are higher.
Speaker Change: You know lower than than others but we're pleased that the 787 actual demand is coming out higher than what we adopted for the basis of our AOP.
Unknown Executive: Now, looking ahead, what we look to happen on the 787 is that in our fiscal 26, we forecast that to get up to maybe eight a month, universally across all the factories. Not just Clemens, but Yakima and Interiors as well, because Interiors is a big 787 provider. They're building, Interiors is building at about
Speaker Change: is pretty strong. Now, looking ahead, what we look to happen on the 787
Speaker Change: is that in our fiscal 26 we would forecast that to get up to maybe eight a month universally across all the factories.
Speaker Change: 38 in our Q4, which is out, you know, January to March. So it's a pretty it's it's a we've we've model a two to three step increase between now and then Boeing does like to keep their steps.
Unknown Executive: Terrific. And just one for you, Jim, tension contribution. I didn't see any in the first quarter. I believe, you know, your initial guide, you had something like 23 million. How much is that contribution expected to be? And when will it hit?
Speaker Change: So, Cai, it's spread out throughout the year. There was none in the first quarter. There's four payments throughout the year, so they'll be spread over the balance of the year. I don't have the exact timing, but I think you can look and it'll be spread pretty evenly over the balance of the year.
Speaker Change: Excellent. Thanks so much.
Unknown Executive: Please go ahead.
Speaker Change: Good morning, Dan and Jim. Thanks so much. So first question for you, maybe on systems and support, if we exclude that IP sale, it looks like margins were 14.5.
Speaker Change: You know, the IP sale of $5 million this quarter compares to $3 million that was in the prior year quarter. Oh. So it's just a slightly more than we've had previously.
Speaker Change: I think the margins are still up even if you took those out, but the fact is those are normal course for us now. We're continuing to improve our older programs that others have seen more value in than we do in running them out, and that helps provide some cash.
Speaker Change: Assistant Support outperformed its plan in the first quarter. It continues to outperform. The aftermarket is very strong there.
Speaker Change: So.
Speaker Change: Can you repeat the second part of your question on where you're looking, where it was going for the full year? Yeah, I was more talking about the absolute margin of like 14.5 as we think about exiting the year, we get to about 19%. So how do margins include so much as we exit the year?
Speaker Change: Yeah, so it's volume driven. Remember that this year we have a couple things going on. We've got price coming in. So we've got $75 million of price. And we've got volume increasing. So in systems and support, as I look at my volume over the course of the year.
Unknown Executive: Despite the second quarter challenges for GEAR that I spoke about, there are significant increases in Q3 and Q4 for the gearboxes that we produce for them, and, you know, we adjust our outlook accordingly. But we'll be prepared for it. And we have the inventory to do it. I think if you look to prior years, look at the trends on the margins prior year, it's very consistent.
Speaker Change: So it's volume driven. There's some price. Remember, we took $40 million of annualized cost out as well across the company. So we're going to see benefits from that too. So the three of those are what's contributing towards the rate that you said, which is very much in the reasonable range for the full year.
Speaker Change: You know, forecasting is difficult, particularly about the future. You know, last year...
Speaker Change: for the gearboxes that we produce for them and you know we adjust our outlook accordingly.
Speaker Change: but we'll be prepared for it. And we have the inventory to do it. I think if you looked at prior years, look at the trends on the margins prior year, it's very consistent that we'll be achieving what we're forecasting for this year.
Speaker Change: And so, as we said, we're studying non-DUs in Q3.
Unknown Executive: and Q. I'm sorry, Q2, we're 70 to 90 years old; we'll be positive in Q3, and then we'll be very positive in Q4, again, similar to prior seasonality that we've seen in prior years.
Speaker Change: Positive in Q2, where 70 is not to use, will be positive in Q3 and then will be very positive in Q4. Again, similar to prior seasonality that we've seen in prior years.
Speaker Change: So aftermarket is a it's a reflection of legacy fleets operating longer because of you know demand I mean you you fly a lot to
Speaker Change: TSA just hit their highest post-COVID throughput, three million, a couple of weeks ago. They need these jets. I mean, I've been flying on wide bodies lately for domestic routes that I never...
Speaker Change: Expected to, but I really like it.
Speaker Change: and we are seeing it strong on military platforms.
Speaker Change: Actuation, as I mentioned, had strong aftermarket. So it's it's not been a single opco or site
Speaker Change: I don't think we're going to see, between the military conflicts that are happening and the delay and ramp versus the backlog of aircraft orders, I don't see aftermarket trending down now for several years. So, it's going to be, I think it'll be a good tailwind for us.
Unknown Executive: I mentioned AAR, but we also use VSC and Trimen as distribution partners, and they're doing a very good job finding spares and repair opportunities for us, so we're not doing this by ourselves.
Speaker Change: And I mentioned AAR, but we also use VSC and Tryman as distribution partners, and they're doing a very good job finding spares and repair opportunities for us, and we're not doing this by ourselves.
Speaker Change: Great, thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Noah Poponak of Goldman Sachs.
Unknown Executive: Please go ahead.
Speaker Change: Please go ahead.
Noah Popenek: Hey, good morning, everyone.
Speaker Change: Good morning.
Speaker Change: Jim, you just alluded to the free cash flow seasonality being similar to the past, but
Unknown Executive: with with the one to actual and what you just guided to for to cue the use in the first half would be about twice the size of the last two years when you had negative full year and the positive in the back half would need to be much larger to get to the full year so directionally it looks you're saying aerospace OE revenue is up a little in the quarter defense is kind of flat after markets really good You've talked about, and others have, Boeing kind of pulling at, The higher rates they plan to get to from the supply chain not really changing.
Speaker Change: With the 1Q actual and what you just guided to for 2Q, the use in the first half would be about twice the size of the last two years when you had negative full year and the positive in the back half would need to be much larger to get to the full year. So directionally, it looks.
Speaker Change: Similar, but the order of magnitude is much different.
Speaker Change: And I guess it sounds like you're pointing to working capital and the volatility from Boeing.
Speaker Change: But...
Speaker Change: You've got a revenue plan for the year of kind of flat organically. You're up a little in the quarter.
Speaker Change: You're saying aerospace OE revenue is up a little in the quarter, defense is kind of flat, aftermarket's really good.
Speaker Change: You've talked about, and others have, Boeing kind of pulling at the higher rates they plan to get to from the supply chain, not really changing that.
Speaker Change: So I guess, you know, with all of that, it's kind of like everything I know except for your final answer on cash flow.
Speaker Change: would make me think that your cash flow did not have a massive use of working capital and burn in the first half in a much different profile than the past two years, yet it does?
Speaker Change: What, what am I missing? What's the missing piece there? I mean, did you just ship a lot more on the front end than others in the industry?
Speaker Change: Or is there something different contractually between you versus others in the industry?
Speaker Change: I'm struggling to understand that much different shape of cash flow compared to revenue.
Speaker Change: So we had some of that, the reverse itself in Q1.
Unknown Executive: because we can't ship everything because the ramps are delayed, because we have some supply chain challenges. And that's going to ship out in the second half of the year. So there is higher cash in the second half of the year and the continuing business than last year. Remember, you got to look at last year, X, the product support business.
Speaker Change: because we can't ship everything because the ramps are delayed because we have some supply chain challenges, and that's gonna ship out in the second half of the year. So there is higher cash in the second half of the year in the continuing business than last year. Remember, you got to look at last year X the product support business. All right.
Speaker Change: And Q4, conservatively, is when most of the working capital reduction is, but there's a portion in Q3 as well. So, you're right that it's a little more exaggerated than it was in prior years, but it's the same profile, magnitude just a little higher in the second half.
Unknown Executive: Can you quantify what you're assuming now for working capital use in the first half and what you're assuming for positive working capital in the second half, roughly?
Speaker Change: Okay.
Speaker Change: Can you quantify what you're assuming now for working capital use in the first half and what you're assuming for positive working capital in the second half, roughly?
Speaker Change: I don't have the working capital line itself to talk about. I just have the total cash flow. But we used $113 million in Q1.
Speaker Change: We're saying we could use in the range of 70 to 90 in Q2.
Speaker Change: We benefited from it. Again, I don't have the exact amount of price to hit Q1. Remember, it's not just price, it's cost out as well.
Unknown Executive: Bye, we replaced a bank near bankrupt supplier on that. And it was a very painful transition. We did it performing reliably now, and we've gotten a price on it since because they don't want to go through that. So I think we'll see price continue to be a tailwind. We're not done.
Speaker Change: Yeah, we continue to see strength in pricing because of the supply chain constraints and people still investing in sources to make sure they can support a ramp when it comes. Or military. As I look at our last ten price ups...
Speaker Change: More than half are military-related.
Unknown Executive: These LTAs keep renewing on an annual basis. You know, in a way, it's got fewer parts and lighter weight, but it's got higher performance for our customers. I give you an example. We just were partnering with several primes on the vapor cycle, cycle cooling, supporting their replacement of legacy cooling systems on the aircraft, and we'll have strong margins on that one.
Speaker Change: And customers are very excited about us supporting their replacement of legacy cooling systems on the aircraft, and we'll have strong margins on that work. So it's an investment we made in years past that will pay off in the future.