Q2 2025 Triumph Group Inc Earnings Call
Please signal conference specialist by pressing the star key followed by zero on your telephone keypad.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Tom Quigley Vice President of Investor Relations. Please go ahead. Thank you good morning, and welcome to our second.
Tom Quigley: Fiscal 2025 earnings call.
Tom Quigley: I'm joined by Dan Crowley, the company's chairman, President and CEO, and Jim Mccabe Senior Vice President and CFO.
Tom Quigley: As we review the financial results for the quarter. Please refer to the presentation posted on our website. This morning, we.
Tom Quigley: We will discuss our adjusted results our adjustment and any reconciliation of non-GAAP financial measures to comparable GAAP measures are explained in the earnings press release.
Tom Quigley: And in the presentation.
Tom Quigley: Certain statements on this call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095. 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.
Tom Quigley: Or implied in the forward looking statements.
Speaker Change: Dan I'll turn it over to you.
Dan: Thanks, Tom and welcome everyone to <unk> second quarter call turning to slide three we had a very good second quarter capping a solid first half.
Dan: This sets the stage for an even stronger second half driven by favorable seasonality in operating leverage.
Dan: Four key highlights from the quarter include strong cash performance and working capital management.
Dan: We exceeded our cash guidance by $35 million in the quarter and Derisked, our full year free cash flow target.
Dan: We remain committed to delivering positive cash flow for the year.
Secondly, we accelerated aftermarket growth.
Dan: Leasing expert aircraft expects this trend to continue through at least 2030. This older aircraft return to service. The legacy fleet is extended and the next generation fleet enters its heavy maintenance cycles.
Dan: We restored our interiors business to profitability in Q2 through a settlement with Boeing and deep cost reductions to right size the business.
Dan: These actions put our interior business on track to achieve higher historical levels of profitability as commercial OEM volumes return.
Dan: Operational excellence improved across all four of our operating companies' results are better than last year.
Dan: This led to year over year sales growth as we mark our 10th consecutive quarter of organic growth.
This progress enables us to raise our fiscal 'twenty five guidance for both profitability and cash flow consistent with the multiyear guidance. We updated in may of 'twenty, four which Jim will detail.
Speaker Change: Turning to slide four.
Speaker Change: You can see that aftermarket grew substantially in the quarter surging, 13% year over year and contributing over 60% of our profit based on strong spares and repairs from our systems and support segment across both commercial and military end markets. This.
Speaker Change: This more than offset commercial OEM softness.
The aftermarket deliveries on the CH 47, Chinook in Q2 were particularly strong reflecting the importance of improving fleet readiness and an uncertain geopolitical environment.
Speaker Change: Notably, we shipped 46 ship sets of $2 55 inch and Fedex on the Chinook as part of our first wave of a five year <unk> IQ program.
Speaker Change: The program will result in the upgrade of the entire $2 55 fleet.
Speaker Change: At a rate of approximately 200 units per year totaling more than $250 million for the entire upgrade program.
Speaker Change: Commercial aftermarket growth was 34% driven by the rising average fleet age.
Speaker Change: Commercial aftermarket sales in the quarter included 787 landing gear actuation spares and repairs from our Yakima site.
Speaker Change: Which will benefit from our multi decade stream of higher margin 787 spares and repairs.
Speaker Change: Prime generated gross margins of 57% in the aftermarket segment.
Speaker Change: We expect aftermarket revenue to grow due to the shortage of new aircraft entering the fleet.
Speaker Change: And the emerging 787 landing gear overhaul cycle.
Speaker Change: As legacy aircraft like the 737 Mg are extended to fill the slots created by delays of new aircraft deliveries.
Speaker Change: Our spares and repair businesses are well positioned to support the demand.
Speaker Change: Our military aftermarket sales benefited from the CH 47, spares and repairs, which carry strong margins in both production and aftermarket helping to offset the short term declines in the V 22 actuators overhaul due to temporary flight restrictions on the Osprey fleet.
Speaker Change: Prime closed a small IP sale for an end of life military program in Q2, as we continue to fine tune, our product and services portfolio.
Speaker Change: While backlog growth in quick turn MRO is not typical.
<unk> total aftermarket backlog worth approximately $100 million is up 12% for the fiscal year end.
Speaker Change: This was made possible by significant orders for spares and repairs orders on the 787 landing gear program.
Speaker Change: Turning to our OEM results military OEM revenues were up across several of the programs in the fiscal second quarter.
Speaker Change: These sales represented over 20% of our total revenue and contributed a similar amount to our profitability.
Speaker Change: Military backlog grew 4% in the first half.
Speaker Change: Highlights for the quarter included multiple wins on the GE F 110 derivative engine.
For new fuel pump in actuator products and $7 million in new orders for the global Hawk, and Triton gearboxes and $4 million overhaul AWACS radome geared.
Speaker Change: Gearboxes.
Speaker Change: It's hitting our status as the largest independent provider of aerospace gearboxes triumph has five new gearboxes that are transitioning production, including an aircraft mounted accessory drives for the <unk> Red Hawk.
Speaker Change: And after these gearboxes enter service they will begin to drive new spares and repairs activities.
Speaker Change: Commercial OEM revenues included sales across more than 30 different programs for rotorcraft regional Jets business Jets, and commercial fixed wing platforms, well beyond the Airbus and Boeing narrow body programs.
Speaker Change: This end market contributes 40% to our total sales, but only 13% of the company's total profitability in the second quarter.
Margin upside potential exists as the market recovers.
Speaker Change: Just on operating leverage.
The profit in our commercial OEM end market increased over 60% from the prior year.
Speaker Change: Due to overall improved pricing as well as increased volumes for the 77.
We expect this trend will continue as we secure further pricing in the 787 ramps.
Speaker Change: In addition, Airbus announced aggressive build rates and they are a top three customer for <unk>.
Speaker Change: In the commercial OEM end market, we are a supplier on the 737, Max the 767 and the Triple seven programs, which represented just 5% of total sales for the quarter.
Speaker Change: While our backlog on these bowling programs declined $60 million since March due to selected push outs of deliveries beyond 24 months.
Speaker Change: Total backlog for these three programs remains high at $350 million.
Now the bowling workers are returning to work, we expect growth from Boeing to begin.
Speaker Change: We continue to make deliveries to Boeing commercial at reduced levels consistent with their portal demands.
Speaker Change: And backlog on all other commercial OEM programs has increased almost $40 million, providing alternative production backfill during this period.
Speaker Change: Overall, there is a lot to be excited about this quarter is <unk> four operating companies are firing on all cylinders.
Speaker Change: Our growing aftermarket segment is benefiting our systems electronics and controls and actuation products and services operating companies.
Jay Leap orders are stable and we are transitioning new gearbox programs into production.
And we reached a positive inflection point within our interiors business because of the cost reductions, including reduced labor costs from over 700 job cuts and contract relief.
Speaker Change: Including a favorable commercial resolution with Boeing.
Speaker Change: This commercial resolution will bring the interiors profitability and cash flow in line with or above our full year expectations.
Speaker Change: I'd like to touch on our continued efforts to modernize and upgrade our production capabilities in support of our new product technology plans.
Speaker Change: Prime's investment to new development labs, and test facilities upgraded machinery and equipment.
Speaker Change: And an enhanced it systems will enable us to deliver on our commitments and engage our customers to solve their most difficult challenges.
Speaker Change: On slide five we highlight one of our strategic investments.
Speaker Change: Our new thermal solutions development center in West Hartford, Connecticut.
Speaker Change: Which officially opened on October 15th.
Speaker Change: I'll try and acquired Fairchild's controls from Airbus Defence and space 2015, and move the business from Maryland, West Hartford, Connecticut.
Speaker Change: Leading to cost and efficiency improvements, which have helped boost our systems and electronics controls business results.
Speaker Change: With the establishment of our new thermal product center, we're responding to emerging requirements from our military customers for both new applications and upgrade programs and special mission pods high power electronics and environmental control systems.
Speaker Change: I want to thank governor Ned Lamont of Connecticut, and the state's congressional delegation for their support of this project with.
Speaker Change: Without which this facility would not exist today.
Importantly, the facility's upgraded electrical power system enables us to test high power pumps and thermal compressors.
Speaker Change: This will help us bring high capacity vapor cycle cooling systems to market that will enhance our OEM and aftermarket results.
Speaker Change: Case in point, the thermal lab will begin testing a new high capacity thermal compressor for Lockheed Martin in Q3 and has strong interest from other Oems.
Interest in solutions to address expanding cooling and heat transfer needs has never been higher including in support of data centers.
West Hartford cyber enabled modular processing system will be the basis for an expanding range of electronic control products and applications. We look forward to providing announcements on this in the future.
Speaker Change: Our gear business is developing a family of engine and aircraft mounted accessory gearboxes, which will be flown on the <unk>, which just flew their first production gearbox and the quarter.
Speaker Change: Congratulations to the Korean K F. 'twenty, one team, which received their first order for 20 aircraft in June with the first aircraft to be delivered in 2026 triumph is currently working to fill those orders of which there will be two <unk> per aircraft.
Our actuation business is delivering new smart up locks to Airbus with embedded sensors to ensure positive up and down lock.
Speaker Change: Through Q2, we grew backlog, 20% in support of this program.
Speaker Change: To sum up our focus on organic growth by expanding our solutions and addressable markets is driving our financial progress towards the targets. We set during our September 23 Investor day.
Speaker Change: As noted on slide six total.
Speaker Change: Total backlog continues to rise up 7% year over year to $1 9 billion.
As military and other commercial platform growth offset the pushout of narrow body orders.
Speaker Change: On the repair side of the business, we were awarded a five year spares contract for a C. Five main landing gear door actuator.
Speaker Change: And the V 22, pylon conversion actuator MRO package for fiscal 'twenty six.
Speaker Change: We're also benefiting from our classified program gearboxes 787 composite ECS ducting Safran electronic engine controls.
And <unk> engine, driven hydraulic pumps as well as the GE F 110 derivative main engine fuel pump for the F 15 Es.
Speaker Change: Growth across all our markets, especially in the aftermarket is encouraging.
Speaker Change: Gives us confidence in our long range targets.
Speaker Change: I want to acknowledge all of the dedicated team members tribes, who make this progress possible.
Speaker Change: Their work has positioned the company to capitalize on strong demand across a diversified customer base and end markets.
Speaker Change: As we continue to gain share with our new products MRO services and takeaways.
Their engagement performance and commitment to continuous improvement underpinned try them success.
Speaker Change: Jim will now review our financial results.
Speaker Change: Thanks, Dan and good morning, everyone Q.
Speaker Change: Q2 results exceeded our expectations. Our strong performance was driven by double digit growth in commercial aftermarket revenue, coupled with lower costs and higher prices in interiors.
The most significant development in the quarter as the interior settlement, which has contributed to restoring that segment to profitability we.
Speaker Change: We took the necessary cost actions to right size, our capacity and we settled with our customer on equitable adjustments for the year.
Speaker Change: Interiors is profitable again importantly throughout this process and tears has continued to maintain its very high level of product quality and on time delivery.
Speaker Change: Let's start with our excellent consolidated second quarter results on slide seven.
Speaker Change: Every financial measure is higher than last year and it is all organic growth.
As Dan mentioned, 13% growth in aftermarket revenue more than offset the temporary OEM revenue headwinds, yielding a net increase in consolidated revenue over last year to $287 million.
Adjusted operating income of $36 million is up $11 million or 44%.
Speaker Change: Adjusted operating margin of 11% expanded 338 basis points over 8% last year.
Adjusted EBITDA of $43 million increased $9 million or 26%.
Speaker Change: And adjusted EBITDA margin of 15% expanded about 300 basis points over 12% last year.
So you might be wondering if OEM demand is down <unk> accelerating its profitable growth.
Speaker Change: The majority of trials profit comes from the sale of its spares and repairs to the growing aftermarket.
Speaker Change: But didn't try and sell its aftermarket business no <unk> did not sell its aftermarket business Prime sold to third party aftermarket business, which was focused on the repair of other companies parts.
Speaker Change: We've been able to turn our focus to our own proprietary aftermarket spares and repairs business the timing could not have been better in this regard our.
Speaker Change: Our aftermarket business represents 33% of <unk> sales in the quarter up from 29% of sales last year.
Speaker Change: <unk> aftermarket revenue only a third of total revenue delivered 61% of our profit in the quarter.
Speaker Change: Our growing installed base of proprietary products drives our profitable aftermarket growth.
Speaker Change: <unk> upgrade opportunities and.
Speaker Change: And enhances our content on next generation platforms.
Speaker Change: We expect this current strong commercial aftermarket demand to continue for years to come.
Speaker Change: The $4 million non-GAAP adjustment this quarter as part of our restructuring primarily to reduce cost in interiors.
Now, we'll look at our Q2 commercial revenue on slide eight.
Speaker Change: Commercial aftermarket revenue was up about $10 million or 26% largely on spares and repairs across the Boeing commercial platforms.
The bow wave of 787 landing gear overhauls is just beginning and evident in the growth in the quarter.
Speaker Change: Commercial OEM revenue of $119 million included increases from 787 volumes, which were tempered by lower revenue from 737, Max and other platforms.
Speaker Change: Now that Boeing workers have returned to work, we expect improvements in our Boeing OEM business. In addition, Airbus announced aggressive build rate ramp on both narrow body and wide body models.
Speaker Change: Shown on slide nine is our Q2 military revenue.
Speaker Change: Military aftermarket revenue of $44 million was about the same as Q2 last year spares and repairs on CH 47, and 864 programs as well as an IP sale of about $5 million were offset by lower V 22 after market sales.
Our aftermarket sales are important to maintaining fleet readiness and the T 55 engine Fedex upgrade program will support this end market for the next several years.
Speaker Change: Military OEM revenue was $64 million in Q2 of $3 million increase over the prior year as volumes on CH 53, K CH $47 864 F 35 programs offset expected decreases on V 22 production rates.
Speaker Change: The diverse set of programs in this end market spanned the aircraft lifecycle and provide predictable margins and cash.
As seen on slide 10, our cash flow was better than we guided by about $35 million.
Speaker Change: Due to stronger than expected commercial aftermarket revenue.
Speaker Change: For Q2, we build up our working capital and had free cash use of $45 million. This included a 42 million semiannual interest payment and $6 million of capital expenditures.
Speaker Change: This cash use in the quarter is of course, driven by the timing of the interest payment, but also by seasonally higher working capital.
Speaker Change: <unk> of OEM, REIT, gramps and supply chain challenges all of which are improving in the second half.
Speaker Change: Our interest payment is $27 million lower than last year due to the significant debt reduction since then.
Speaker Change: Additionally, in Q1, we redeemed $120 million of the first lien, 9% 2028 notes, reducing them to $959 million.
Speaker Change: That led to the credit upgrades from both Moody's and S&P that we reported early in the quarter.
Speaker Change: On slide 11 is our net debt and liquidity at the end of the quarter net debt was $868 million.
Speaker Change: <unk> $644 million or 43% lower than Q2 last year.
Speaker Change: Our leverage is now down to five five times were two eight turns less than eight three times last year.
Speaker Change: Liquidity totaled $148 million, including $105 million of cash is sufficient for our planned working capital needs.
Speaker Change: As a reminder, our combined debt reduction across fiscal 'twenty, four and 'twenty five year to date will yield $55 million of annual interest savings and our remaining notes are not due until 2028.
Speaker Change: Moving to slide 12, let's discuss the increase in our FY 'twenty five guidance.
Speaker Change: We're increasing both our earnings and cash flow guidance based on the continuing strength of our aftermarket sales the cost reductions and commercial resolution interiors, none of the temporary near term commercial OEM headwinds.
Speaker Change: We continue to expect net sales of approximately $1 2 billion.
We've increased our EBITDA estimate from $182 million to a range of $190 million to $195 million.
Speaker Change: For an EBITDA margin of 16%, that's up about 400 basis points compared to 12% last year.
Speaker Change: We've also increased our free cash flow estimate and now expect $20 million to $30 million of cash generation in FY 'twenty five.
Speaker Change: Looking ahead to the second half in addition to normal seasonality, we anticipate increased sales and margin compared to last year from a continued strong aftermarket demand and greater contribution from the $75 million of incremental pricing, we planned for and have already exceeded for the year.
Speaker Change: Free cash flow in the third quarter is expected to be positive supported by improving margins and partially offset by working capital timing due to temporary OEM headwinds. We also forecast rapid working capital burn off in the fourth fiscal quarter consistent with our full year free cash flow guidance and the prior year trend.
In summary, our second quarter results exceeded our expectations revenue operating income EBITDA and cash flow all improved over the prior year and.
Speaker Change: <unk> has returned to profitability in commercial aftermarket demand remained strong all leading to the raise in our FY 'twenty five earnings and cash flow guidance.
Dan Crowley: Now I'll turn the call back to Dan Dan.
Dan Crowley: Thanks, Jim overall, we had a solid first half that positions us to exceed our fiscal 'twenty five objectives and stay on the trajectory we shared at our Investor day 14 months ago.
Dan Crowley: The actions, we've taken to strengthen our balance sheet streamline our business and focus our product portfolio positioned triumph to deliver enhanced value for our shareholders.
Triumph has become an aftermarket driven company that benefits from a robust inventory of IP based products the.
Dan Crowley: The strength of the aftermarket demand is more than offsetting short term softness in some commercial programs.
Dan Crowley: Along with the improvement in the aftermarket the increasing contribution of our negotiated price ups in.
Dan Crowley: In our seasonally strong second half give us confidence in achieving the updated outlook.
Dan Crowley: Our team remains excited about our new facilities and products for future aircraft and engines and looks forward to playing a key role on the Nextgen fleets.
Dan Crowley: We're happy to answer any questions you have.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Time for a question has been addressed and you'd like to withdraw your question. Please press Star then two.
Speaker Change: In the interest of time, please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question comes from Sheila <unk> from Jefferies. Please go ahead.
Speaker Change: Good morning, gentlemen, Jim and thank you for letting me answer both Q&A I enjoyed Jim's went online Q&A just now Paul.
Speaker Change: No more questions about the aftermarket.
Speaker Change: Wanted to focus in on the guidance.
Speaker Change: <unk> and <unk>.
Speaker Change: Thank you have a lot of confidence and Daniel just mentioned sequential robot.
Speaker Change: Second half.
Speaker Change: But you did raise EBITDA adjusted global top 10 by 20% margins in the second half up from 14%.
Speaker Change: Despite that Q1 timers. So how do we think about the drivers of that pop it up are or how much does that Boeing contract.
Speaker Change: Thanks, Sheila I'll start and Dan can add in.
Speaker Change: Yes.
Speaker Change: Settled with Boeing is important to interiors and you can see that as a separate segment.
Speaker Change: And it's just resolution of changes in costs that we had rights to negotiate and achieved so it's been a longtime coming we've been working on for a while and we're happy to put that in place.
Speaker Change: But the aftermarket is really the story here and that's why I did ask myself a question or two because I've been getting that question a lot from people, who forgot that we didn't sell our own aftermarket and it's very important because the aftermarket of our products, we get all the spares because they're proprietary.
Speaker Change: And right now the aftermarket demand is solid double digit growth and there's no end in sight for it. So it's not it's only 33% of our sales and 61% of our profit in the quarter. So I think it's the unhedged story that people need to pay attention to is the strength of the installed base in the aftermarket and the spares that drives and Thats whats driving that.
Speaker Change: Profitability in the second half as well.
Speaker Change: Nathan maybe can I just ask on cash if possible the free cash flow guidance for baseball.
Speaker Change: But it still seems like a pretty steep decline of $180 million and caught up late in the second half. So how do we think about the moving pieces of working capital that are helpful. There.
Speaker Change: Yes.
Speaker Change: The cyclicality historically has been very strong fourth quarter and it's no change this year.
Speaker Change: Cash uses primarily building working capital in the first half of the year and we forecast to be cash positive second half with the majority of that cash coming in the fourth quarter. It's bolstered by the increase in profitability from the equitable adjustment, we got in tears and from the strong aftermarket which has quick turns on collecting cash.
Bill I'll, just add that as a 140 days we have left in the year, we don't have to win any new work to hit those numbers, we have it all in backlog. It's all in flow of the parts are either on Andrew.
Speaker Change: Or in the pipeline in every operating company in every site knows exactly what they are shipped by the end of the year. So it is it's a steep climb. It always is this one is not materially higher than prior year. So we're confident we can do it.
Okay. Thank you so much thank you.
Speaker Change: The next question comes from David Strauss from Barclays. Please go ahead.
Speaker Change: Good morning, Thanks for taking my question.
Speaker Change: With regard to the equitable adjustment on mid tier so it's zero.
Speaker Change: <unk> was there a one time adjustment in the quarter and then what is the prospect I get the pricing adjustments.
Speaker Change: After this year, what's the potential for that to extend beyond this year.
Speaker Change: Sure David.
Speaker Change: Yeah without getting into details of customer contracts this provisions for.
Speaker Change: Big changes in volume and extraordinary inflation. So those are negotiated and settled on a regular basis.
Speaker Change: The one right now is settling them for this year, but thats something going forward as volumes and inflation changes that we would renegotiate.
Speaker Change: Okay, I think I think you're also asking.
David Strauss: Go ahead, sorry go ahead David.
David Strauss: I was just going to ask the follow up there on with Airbus. I think you also have a fair amount of business on the interior side has there been any sort of adjustment with Airbus or are you talking to Airbus about the any adjustments there.
We are talking to them because some of the same inflationary impacts that Jim mentioned or the use of directed sources.
David Strauss: For the input materials, where you really can't compete the work and prices have gone up at the lower tiers.
David Strauss: We have discussions on equitable adjustments and both discussions Boeing and Airbus are very much joint problem solving.
David Strauss: Not in denial of that these kind of inflationary impacts are happening.
We certainly want to substantiate it in fact, Jim and I met the Boeing team down in Mexico last may.
David Strauss: To review the operations and they were impressed with the operations our interiors business performs very well on time delivery quality, they're one of the few sites factories that can do high volume high mix.
David Strauss: Production. So the issue is not performance, it's really the external costs.
David Strauss: It hit those businesses for both Boeing and Airbus. So so yes, we reached agreement with Boeing in the quarter and were in discussions with Airbus as well.
David Strauss: Okay.
Speaker Change: One quick follow up.
You talked about reiterating the Investor day targets I believe but those were given prior I believe to the cell product support. So can you just remind us of lease from a EBITDA margin perspective, and maybe free cash flow margin perspective, what exactly the targets are now.
Speaker Change: Sure.
Speaker Change: And we update those when we gave our guidance for this year are back in may to exclude the product support business that was divested.
Speaker Change: <unk>.
Speaker Change: So I would refer you back to that but I believe it should have been over 20% margin for the terminal year and.
Speaker Change: And the free cash flow conversion.
Speaker Change: It was approaching 10%.
Speaker Change: Okay. Thanks very much.
Thanks, David.
Speaker Change: The next question comes from Michael <unk> from <unk>. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking my questions and nice job.
Speaker Change: Nice results just maybe back to.
Sheila for the question I guess, the underlying second half EBITDA margins implied are about 20%.
<unk> done that run rate before and I guess, if I can.
Speaker Change: Try to maybe.
Speaker Change: TAC the margin to it seems like the underlying OEM had been bouncing between maybe fully an 8% so.
Speaker Change: Is the bulk of the margin lift really coming from.
Speaker Change: OEM margins improving on Justice settlement.
Speaker Change: Maybe maybe a third question there what are your underlying production rates I mean, there's still definitely some supply chain pressures out there. So maybe just a little bit more color.
Speaker Change: Yes.
So mix is a big part of it because we have a higher mix of the aftermarket which is higher margin.
Speaker Change: The margins are up year over year expected to be in.
Speaker Change: And primarily driven by mix, but certainly the accrual adjustment is helping in the anterior segment as well.
Speaker Change: Okay. Okay.
Speaker Change: Does the afternoon to follow up on that the aftermarket.
Speaker Change: Do you guys envision with growth accelerating from here it looks like the revenues are actually flat sequentially.
Speaker Change: On the commercial.
Speaker Change: So and afterwards aftermarket to I guess I would.
Speaker Change: Make sure you remember that the 770 <unk> wave is happening. So we're seeing much more of the repairs on 77 landing gear components and spares, that's going to help too.
Speaker Change: Okay, Alright, I'll keep it there thanks guys.
Speaker Change: The next question comes from Seth <unk> from Jpmorgan. Please go ahead.
Hey, good morning, and thanks very much.
Speaker Change: So just wanted to kind of level set now in interiors in terms of.
And what we saw in the quarter in terms of sales and EBITDA.
Speaker Change: And how we can think about this going forward.
Speaker Change: Should we expect interiors to be kind of profitable in this kind of single digit million range on a go forward basis and also just in terms of the sales I think I recall last quarter that last year, you guys have been delivering ahead of where Boeing was producing and obviously the rates.
Speaker Change: Have decelerated since then and so should we expect where do we expect revenue to go in and interiors.
Speaker Change: The $38 million in the second quarter.
Speaker Change: I'll take that one.
Speaker Change: So we had a re look at our multi year forecast for the whole business and we increased what systems electronics and controls is going to contribute both on OEM and aftermarket and we reduced interiors.
Speaker Change: We just decided to be more conservative for the reasons that you mentioned, which is they have some buffer stock.
Speaker Change: And the rates are depressed in the short term, but what we did in the quarter. That's meaningful is that we right size the business to reflect the true demand. So about 2000 employees was reduced to about 1200 in the quarter Secondly, we consolidated it with.
Speaker Change: Management wise with our <unk> business that we had savings on the SG&A side.
Speaker Change: And then the Boeing settlement.
Speaker Change: Was huge.
Speaker Change: Seattle I met with all the senior leaders.
We discussed the rights that we're entitled to under the contract.
Speaker Change: <unk> two.
Speaker Change: To inflationary impacts and Boeing was very reasonable in our discussions certainly they're interested in maintaining the workforce. There when they are at rate. These factories produce million blankets, a year and tens of thousands of composite ducting, So a key supplier to Boeing and.
Speaker Change: In the short term the rates are down.
Speaker Change: You asked about the margins.
Speaker Change: Second half of the year is going to be definitely profitable now with the price relief full year theres going to be around 6% EBITDA margins in interiors and then year over year, we will certainly get back to double digits, but we've assumed.
Speaker Change: Low double digit margins and dollars of EBITDA.
Speaker Change: For our fiscal 26 to 29 long term plan and we will update that as Boeing burns off and on hand inventory and steps the rates up.
Speaker Change: Okay excellent that's very helpful.
And then just on the aftermarket to seeing 787.
Speaker Change: Up over 200% some nice increases on triples.
Speaker Change: At <unk> as well I guess, it but the overall.
All aftermarket growth was 25% and so are there pieces are there other pieces of the aftermarket significant piece of the aftermarket that are down year on year.
Speaker Change: So there are certain programs in the aftermarket that are near end of life for that have temporary pauses like the V 22 kind of military spares were flat.
Speaker Change: But the ones that you highlighted are some of the key drivers for the growth is 787 Triple 700 Mg and.
Speaker Change: And overall the market has grown at double digits, and we see that continuing for another quarters, but years to come and the V. 22 is mostly due to the temporary flight restriction.
Limiting the use of the aircraft following the crash unrelated to our products. So we expect that aftermarket too to come back in time.
Speaker Change: Right right, Okay. Thanks very much.
Speaker Change: Okay.
Speaker Change: The next question comes from Ronald Epstein from Bank of America. Please go ahead.
Speaker Change: Good morning, everyone. This is an ideal frontline today.
Speaker Change: Good morning, good morning.
Speaker Change: So I wanted to ask a question about <unk> future.
Shaping strategy are there any assets that remain to be divested that are meaningfully now or how should we think about that going forward.
Speaker Change: So no we're not actively seeking to sell any of our operating companies or our sites we've arrived at it.
Speaker Change: The future state portfolio, we want.
Speaker Change: Certainly getting interiors backup to volume is going to help on that business, but.
Speaker Change: The core value as Jim noted is driven out of our SEC and Aps business predominantly aftermarket. So we're very happy with what we have there.
Speaker Change: These are both businesses that are growing organically very nice year over year, and that's where our capex investments growing as well so the big value levers.
Speaker Change: And those two businesses. We also expect gears to improve right now gears is running about 10%.
Speaker Change: But theres four or five development programs I mentioned that.
Speaker Change: Those transition to production margins and gears will pick up as well, but what we are doing is if there is any sort of end of life programs that we don't see meaningful aftermarket flow on it we'll monetize those but thats a very small contributor to our financials.
Speaker Change: And of course, our leverage is now down to five five times and we have strong cash and liquidity. So that theres no need to do any kind of divestiture for that reason, we took advantage of the third party aftermarket opportunity to delever more rapidly than we even planned in our prior investor day.
Thank you and then my follow up E.
Speaker Change: Commercial OE.
Speaker Change: You mentioned the inventory ASM volume going through like the like.
Speaker Change: Burning off inventory was critical for them to start ramping up.
Speaker Change: Their demand for offshore products do you have any sense of how much inventory do they have.
Speaker Change: On your parts.
Speaker Change: We do at various byproduct across actuation, the inventories are lower interiors as a little bit higher.
Speaker Change: And what Boeing did is when they went into the production pause.
Speaker Change: And then they went through a period, where they were doing a temporary ship hold they had time to go into an inventory all of our on hand inventory and they begin to share that information with us, but it didn't lead to a production stop in our factories, because Boeing doesn't want that they know that restarting aligned as all kinds of consequences of Los <unk>.
Speaker Change: <unk>.
Speaker Change: Soft tooth and the learning curve and the trading of key skills. So we continue to produce albeit at low rates in those plants and what Boeing is going to do is they're going to update their portals over the next several months as they finalize their ramp to 38 a month.
Speaker Change: Next year sometime and they'll let us feather in new production with the burn off of inventory. So we're not concerned about it.
Speaker Change: I'll remind you that the total impact.
Speaker Change: Pact of all of the Boeing production pauses and strikes.
Speaker Change: And temporary shipment holds for triumph for the full year is only 5% of sales. So we've done a lot to diversify our customer base and platforms and I think there was a lot of speculation about.
Deep impacts to try it because of this is not the case at all.
Speaker Change: Thank you very much.
Speaker Change: <unk>.
Speaker Change: The next question comes from Cai von rumor from TD Cowen. Please go ahead.
Speaker Change: Yes, thanks, so much and great quarter guys.
Speaker Change: Okay. Thank you.
Did I hear you say, 6% adjusted EBIT margins for interiors, because that would imply.
Speaker Change: Mid to high teens margins in the second half.
Speaker Change: Yes, that's right in the five to six range for the full year. We just took a lot of expenses out of that business and we're going to see the benefit of those in the second half of this year.
Speaker Change: Got it and then if I look at the.
Speaker Change: The pattern last year after market was down sequentially in both commercial and military a fair amount in the third quarter and then it spiked up in the fourth quarter should we expect that similar type of pattern. This year.
So in absolute dollars there is going to continue to be growth and similar to the year over year growth last year, I think because Oems coming back that may.
Speaker Change: Moderate that as a percentage of sales.
Both are going to be positive for fourth quarter, and thats going to be our strongest quarter again this year.
Speaker Change: But will they be up down sequentially as they were last year.
We don't anticipate that.
Speaker Change: One thing that's different about this year from last year is last year I think people were still doing fleet planning based on receipt of new aircraft and now they've sort of given up on that and they recommitted to the legacy fleet in fact, they've been bringing aircraft out of storage into the fleet and having to spend money to bring them up to date. So I think part of the difference year over year.
Speaker Change: Or is that.
People are relying on these legacy aircraft more than they were a year ago.
Speaker Change: Terrific. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Okay and if you have a question. Please press Star then one.
Speaker Change: And our next question comes from Myles Walton from Wolfe Research. Please go ahead.
Thanks, Good morning.
Speaker Change: Alright, good morning, Dan Dan There was reports of triumph exploring strategic options is hoping you could elaborate on the extensive those alternatives being looked at and maybe any decision timing that youre thinking about.
Speaker Change: Yeah. Thanks, Myles, we can't really control the rumors that are out there.
Speaker Change: And we don't comment on them I take this kind of coverage as a compliment.
Speaker Change: We read the same articles that you did to me. It's a testament to the success of all the hard work that Jim and I and the leadership team. The workforce has been doing and the progress we've made what.
Speaker Change: What I can say is that my team and I are remain committed to creating shareholder value.
Speaker Change: And building on all the success. We've had we've now achieved peer like profitability I remember when we're running 6% EBITDA margins and we've set a goal for 16, which was the peer average at the time and we're now hitting that number this year and we're not done all the <unk>.
Speaker Change: Profit you see kicking in from price negotiations people.
Speaker Change: For ever wanted to know are you getting price and when are we going to see it where youre seeing it in fiscal 'twenty five and that will continue in the years ahead, our backlog is growing.
Speaker Change: Our balance sheet is stronger in all of those things I think fuel rumors and speculation about will.
We acquired so what I really like investors to take away from our results is that we're in a really good position of strength.
Speaker Change: Whether the issues with Boeing.
Speaker Change: As a partner with them during the last year, where the attractive supplier in a growing market a lot of folks do speculate this will be the start of another super cycle. We've got a huge installed base, we've got robust aftermarket sales and we've got a great IP based product line.
Speaker Change: Our pipeline of products in fact after I finish this call today, we're going to do two days of Strat planning review. So we're focused on the future we feel like we've got a great run.
Speaker Change: Run way for the business over the next several years and we're just going to continue to drive value in whatever form that takes.
Speaker Change: And Dan you commented on geared solutions I think you mentioned management in combination with interiors for cost reduction efforts I'm curious under the surface within geared solutions as a business I know you have had to deal with the V 22 production declines and then Im curious all about also about the leap gearbox production given.
The leap volumes, obviously, it's been low is that business poised for a significant inflection of your trough on V 22, and what is your leap output looked like.
Speaker Change: Yeah. Thanks, Myles so gears has been.
Speaker Change: A labor of Love for me for the last several years, we cleaned up a number of development programs that they had those are now going to be.
Speaker Change: The foundation for several new franchises and supportive aircraft mounted accessory drives.
Speaker Change: We're on the B 21, where on <unk>, we are on the K F. 'twenty one so although it was painful in terms of margins those businesses will benefit.
The business will benefit from those programs going forward.
Speaker Change: V 22 has been an anchor tenant in that business, both OEM and aftermarket has really helped a lot. So when they reduce the delivery rate on the OEM side and brought MRO down a little bit.
Speaker Change: It hit the numbers, but we're looking forward to that coming back.
Speaker Change: And these aircraft are going to continue to fly for a long time, just like legacy F 16, and in the <unk> you name it.
Speaker Change: In terms of the leap.
Speaker Change: We've won an 80 20 work.
Speaker Change: Share with with GE as an incumbent.
Speaker Change: Gearbox plant and the relationships with GE are very strong.
Speaker Change: We looked at deliveries.
Speaker Change: The past year, it's I think they've approached 700 this year to be about 600.
Speaker Change: We discussed with GE, the importance of maintaining throughput not shopped and reached recently reached an agreement.
Speaker Change: Where we'd be allowed to do that.
Speaker Change: And so even though their deliveries of engines and Theres. Some theres in finished good engines at Boeing.
Speaker Change: Letting a stay at a fairly high rate. So we're not going to see a dip in production in terms of the longer term forecast for gears I think it's going to be in an incremental year over year improvement its not going to be the rapid swing in profitability. We saw in interiors, but we also don't expect further trough.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Noah <unk> from Goldman Sachs. Please go ahead.
Yes.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Alright, good morning.
Speaker Change: Hey, Jim I guess.
Speaker Change: The multi year free cash flow outlook at the Investor day.
Speaker Change: A little while back and then as you mentioned.
Speaker Change: In the fourth quarter last year, you revise that.
Speaker Change: You had the product support sale and I think a few other moving pieces.
I guess today, if youre raising the 25.
Speaker Change: You have this improvement in the interiors margin outlook. It seems like maybe a few other positives.
Speaker Change: Is the base case still just what you've provided provided in the fourth quarter deck or is it something in between Investor day in the fourth quarter deck.
Speaker Change: Well the achievements we've had this year.
Speaker Change: Deleveraging to reduce interest expense.
Speaker Change: <unk> ability to strong aftermarket.
Speaker Change: Settlement on interiors, all give us much higher confidence in those targets and we had before we haven't updated those targets yet we're in the middle of our planning process right now and then we'll get into budgeting for next year and normally it would be an annual cycle, where we would update our multi year targets, but certainly it should give everyone much more confidence that they are highly achievable I remember those targets don't incur.
Speaker Change: <unk> capital structure improvements because we have this 9% note thats trading at 105, right now that the no call period ends in four months.
And we'll be able to.
Speaker Change: Look at options Opportunistically, because that is not due until 2028 to even further reduce reduce interest expense and right. Now we have really more working capital than we should need long term because of some of the disruption in demand.
Speaker Change: It stabilizes, we are going to have even more tailwind for cash flow in the coming year.
Speaker Change: Okay.
Speaker Change: And within the 2026 and 2028.
The 4% and a 10% free cash as a percentage of sales can you speak at all.
Two what would now roll into that for the interiors segment margin.
Speaker Change: So that's the consolidated target.
Speaker Change: I can't give any specific details of what part is interiors and what part of the system to support until we finish our cycle this year planning.
Speaker Change: And we'd always planned on getting equal adjustments in that business, we've now achieved them.
Speaker Change: So I think those targets are intact, but with higher confidence and of course, we're always looking to improve them and move forward.
Speaker Change: So hopefully you can tell from the numbers speak for themselves this quarter, we really.
Speaker Change: It will all cylinders and we're looking forward to that falling through.
Speaker Change: All of these targets and maybe it would be higher.
Okay.
Dan Crowley: And Dan.
Dan Crowley: You talked about the Max.
Dan Crowley: And kind of ramping back up here and working through the inventory I guess just.
Speaker Change: Curious your view.
Speaker Change: Just given how close you are to the situation.
Speaker Change: Boeing's ability to ramp back up at the total program level.
Speaker Change: On their earnings call.
Speaker Change: Think.
Speaker Change: We're pretty cautious and sort of alluded to that taking a long time.
Speaker Change: <unk> got a lot of the supply chain kept going.
Speaker Change: The September progress that they have shown looked pretty good so obviously they need to balance.
Speaker Change: The right product quality and safety, but they also have their own balance sheet and an entire supply chain, that's waiting for them to deliver to demand. So I'm just curious from your perspective.
Speaker Change: How quickly do you think they should and could ramp back up to the Max.
Speaker Change: So as I mentioned I was out there in the quarter I met with Aesop manure runs Boeing.
Speaker Change: Commercial supply chain and I have a lot of confidence in him.
Speaker Change: He is somebody that understands the customer's perspective, having run the business development function.
He lived at.
Speaker Change: At spirit.
Speaker Change: After some of their quality scapes to help them put in place the controls they needed.
Speaker Change: And we talked about their on hand inventory and I think one of the silver linings of the production pause and the strike is that.
Speaker Change: Large number of commodity parts have caught up and they have robust buffer stocks. So I don't think theyre going to be limited in the ramp by part availability.
They were in prior quarters sort of post COVID-19 quarters.
Speaker Change: In terms of the workforce engagement I'm optimistic with Kelly <unk> leadership style with the favorable settlement with the Iam is that theyre going to come together and in fact.
Speaker Change: My comments Boeing was.
Speaker Change: The partnership with the workforce is ultimately more important in the economics of the settlement.
Speaker Change: And I know that they are really focused.
Speaker Change: Our focus on training since a lot of their employees.
Less experience.
Speaker Change: And.
Speaker Change: I think people, who predict that they're going to struggle.
Speaker Change: To be proven wrong, I think they are going to get back on it and they will have better parts support so I can't comment on the shape of that ramp other than Boeing does typically do it in steps. They don't do it in a month over month I do it for a period of time, So I would just say watch for those steps.
Speaker Change: And know that the supply chain is ready to push the throttle forward.
Speaker Change: Okay. Thanks, guys.
Speaker Change: But.
Speaker Change: This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.