Q1 2020 Earnings Call
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Good morning, I have the conference I'd number please.
I don't have the I'd number I'm trying to connect to the.
The triumph group earnings call.
Okay. That's fine I found it yeah I have the spelling of your first and last name. Please.
Our why end H E.
Hi.
Okay, Mr. Healy, let's let me I have your company name. Please.
Era eight era.
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Okay, So that Alpha India, Ico Roamio funds at right.
Correct.
Thank you I will jump you know.
This is well underway.
Interest from both strategic and financial parties is encouraging.
We are following a rigorous and disciplined process and continue to evaluate all scenarios, which include potentially keeping selling or further restructuring pieces or all of the business.
We will continue to move through the process quickly, while maintaining close communications with our customers workforce and suppliers.
In parallel our aerospace structures team continues to perform well, reflecting the value of the team, we built and a cleaner backlog.
Structures continues to be recognized and engaged by customers.
As evidenced by recent agreements with Mitsubishi aircraft Corporation and E V tall provider John Air mobility.
These projects present exciting opportunities for our engineering team to design major aircraft structures optimizing weighed in cost and in the future provide production and aftermarket support on these platforms.
So in summary, having sold 10 of the original 47 operating companies, thus far we're making solid progress on reshaping our portfolio as we pursue our path to the highest shareholder value.
Before I turn it over to Jim I want to comment on the impact of the delays of the 737, Max aircrafts return to flight.
We continue to remain in close contact with Boeing and our suppliers.
We've analyzed the impact of the most recent announcements on our forecast.
And do not anticipate a material impact on triumphs F Y 20 financial performance.
We have minimal structural content on the 737 Max.
Most of the slowdown impact was felt at our interiors business in Mexicali.
Which provides just in time installation inducting deliveries.
And to a lesser degree actuator and applaud deliveries from other parts of triumph.
We are using the temporary rate reduction to de risk our supply chain and prepare for higher production rates.
Note that we anticipate additional requirements associated with the triple seven to lessen any medium term impact.
The Max program historically has contributed a single digit percentage of our annual revenue.
We expect the F Y 20 revenue impact to be less than 2% of sales.
With similar impacts to operating income and cash.
Overperformance on other programs is expected to offset any max impact for the full year.
As such we do not anticipate any changes to our guidance as a result of situation at this time.
A return to flight and ramp up will provide a tailwind going into F y 21.
And achieve positive free cash flow.
On an annual basis for the first time in three years.
Triumph this focus on operational and strategic execution.
Through tight working capital and portfolio management and effective resolution of difficult structures contracts.
We now have the financial strength and bandwidth to better serve our customers and create value for our shareholders as we improve year over year and quarter over quarter.
With that Jim will now take us through more detailed financial results for the quarter Jim.
Thanks, Dan and good morning, everyone.
I will discuss our consolidated and business unit performance on an adjusted basis. So please see our press release and supplemental slides for the explanation of our adjustments.
On slide nine.
You'll find our consolidated results for the quarter.
Net sales increased 6% on an organic basis over the prior year first quarter.
All three business units generate organic growth as well.
Adjusted operating income was $42 million this quarter and our adjusted operating margin was 6% up about 300 basis points from last years first quarter.
For the 21st quarter sales in our integrated systems segment increased approximately 5% organically compared to the prior year driven primarily by growth in engine components and military rotorcraft sales.
Integrated systems backlog grew $120 million from the prior year driven by strong increases on both military and commercial platforms.
Margins for integrated systems were consistent with the prior year quarter.
The margin reflected higher OEM sales in the quarter relative to the prior year and some.
Meaningful margin expansion in Q2 and continued improvement for the second half of the 420 into the high teens.
Turning to slide 11 first quarter sales for our product support segment were up approximately 7% on an organic basis due to accessory component repairs in the us and structural component repairs and increased parts trading in Asia.
The product support organic operating margin was up a robust 340 basis points year over year and reflects cost reduction benefits improved product mix and favorable pricing.
Aerospace structures results are summarized on slide 12.
Aerospace structures operating margin of 3% reflects the benefits of the portfolio shaping and cost reduction actions, we've taken as part of our transformation efforts.
The group is executing the transition to the two and GE to 80 programs as planned on time and on budget.
Turning to slide 13.
And reflects our portfolio and program changes.
Cost reduction actions and working capital management, especially within our products supported aerospace structures business units.
We anticipate modestly higher cash used in the second quarter than in Q1.
And a cash positive second half.
We remain focused on meeting our objective of positive free cash flow. This year and are confident that we will deliver on that commitment.
Working capital reduction is expected to generate cash in the second half.
On slide 14 is a summary of our net debt and liquidity.
Our net debt at the end of the quarter was approximately $1.4 billion and our cash availability was strong at approximately $520 million.
We are in compliance with all of our financial covenants.
Slide 15 is a summary of our Eflow 20 guidance, which is unchanged from the guidance we provided last quarter.
We maintain our expectation for adjusted EPS of $2.35 to $2.95.
Our guidance assumes normalized 21% effective tax rate for the year and has the potential to be reduced in Q4 due to the partial release of the valuation allowance.
Cash taxes net of refunds received our soon to be approximately $10 million for the year.
We expect free cash flow for the full year to be between zero and $50 million.
Slide 16 provides some additional detail about our cash guidance.
For our 2020, we expect cash flow from operations of $50 million to $110 million, which includes liquidation of customer advances approximately $80 million in the year.
With our first quarter of 420 behind US we are increasingly confident in our ability to generate cash and profitable core growth this year.
As we reduce our leverage we will continue to invest in our core businesses to accelerate that profitable growth and drive meaningful increases in shareholder value.
Now I will turn the call back to Dan.
Dan.
Thanks, Jim today Triumph is defined by our close customer relationships a pipeline of increasingly profitable programs, a talented committed employee base and the integrated organization structure better equipped for execution.
Our Q1 results demonstrate that our restructuring and transformation efforts.
Have positioned prime for success as we move through the year, we look forward to executing on our programs and growing our already strong backlog.
We are guided by a clear strategic plan and I remain confident and triumphs ability to succeed.
To compete and to drive value creation over the long term.
We're now happy to take any questions.
At this time the officers of the company would like to open the floor to any questions that you may have.
We ask that you limit yourself to one question and one follow up question to give everyone. The opportunity to participate if you are using a speakerphone. Please pick up the handset before pressing any numbers. So you have a question. Please press Star then one on your push button phone should you wish to withdraw your question. Please press the pound key.
Your questions will be taken in order to receive please stand by for first question.
Our first question comes from Robert Spingarn with Credit Suisse.
Hi, it's obvious question on for Rob Spingarn, and so first of all I just want to address the elephant in the room here I know that you said that there would be a limited impact from the Max trending but.
You mean with some of the commentary aside from Boeing could you touch on perhaps any impact you would see as production rates for any further or if production was suspended altogether.
Thanks.
Sure. Thanks Adrienne.
The overall impact on Max.
No three continue to believe that the 52 a month for several months and then they began to step down it was a little bit more of an immediate impact on our mexicali interiors ducting business, because they really do deliver just in time.
But that factory support seven major platforms, including Airbus. So.
The factories not.
Impacted severely should Boeing stepped down there right below 42, which I have no indication that they intend to do.
There would be a proportionate reduction.
In our revenue and NOI, but we have other programs that are ramping.
Including Boeing programs 787767.
As well as Airbus programs. So we're not concerned about that certainly if there was a full stop we'd have to reassess slowdown, but what Boeing fastest do is to use this temporary flat spot in the rate to de risk the supply chain and that's exactly what we're doing and by continuing over production at the higher rate at several of our plants.
We've been able to replenish buffer stock so for us in the short term and so it's a very modest impact and we're confident that when the rate rate goes back up that will benefit from that increase I think it speaks to the strength of our diversification across programs and markets.
This one program, even though it's a significant impact of the program does not impact us in a significant way.
Great. Thanks for the clarity and then can you give us a quick update on the progress at the structure sale.
Thanks.
Sure as noted we've been working on this for about three months since we announced our strategic alternatives and.
We really have a good picture now where we're headed and we've had a lot of encouraging interest from outside parties, both strategic and financial sponsors.
And it's a business that's performing well that helps.
Whenever you talked to potential partners they want to see how you doing in 12 months.
Retrospective and also how you are looking and we continue to win I mentioned, the MH I Award and our partnership.
With.
The John TV tall as just an example of what things were working on and recall last year, we extended some of our franchise programs like 787, and 767 for 10 years. So theres a solid back log of a business that people are showing interest in and working very quickly through the process and we plan to provide more updates in future quarters.
And I think we're very pleased with the performance in that business. This past quarter, that's very stable business now has good liquidity.
And so.
We are positive about outcomes there if we've done anything over the last three years I think we've established track record of being able to divest noncore operations, New program transitions and do restructuring and consolidation. So I would say look for more announcements in that regard.
All right, great and congrats again on the quarter ill pass the line.
Thank you.
Our next question comes from Stephan with JP Morgan.
Hey, Good morning, gentlemen, this is Ben on for Seth.
Good morning, good morning.
I guess I just wanted to hone in on the profitability and integrated systems here.
Even after adding back there.
Restructuring costs in the quarter were still hovering at 14% to 15% EBITDA margins on is there anything for us to consider that has changed structurally about this business in terms of.
Maybe the mix or the contract terms that you're on your operating on.
So no there's no structural changes to Ta has internally we knew this quarter would be soft on margins, but we're maintaining our full year margin profile, because we've got confidence that we're going to step it up in Q2, three and four.
There were some delays in shipment that was really a pacing item for us some higher margin products that were supposed to ship that are being paced by sub tier supplier deliveries.
This is an industry wide challenge that we're working through even small items like seals and bearings as well as raw material as the Oems try to lock down capacity.
And sometimes make it tougher for other.
Suppliers to deliver their products. So we've been working with all of our suppliers as they ramp up capacity and as they bring either mill capacity on for raw materials for additional equipment to meet the ramping narrow body rates as well as.
Suppliers like triumphant at tier two and three.
We expect recovery over the next few quarters. So we know why we were down in margin slightly not not far from where we were in the prior year Q1, and we are confident that we can step that up in coming quarters.
It is a seasonally low quarter for this segment in particular, so volume will increase and with that margins will increase as I mentioned, we expect a meaningful improvement in margins second quarter.
Great. Thank you and just.
Maybe the free cash flow for triumph excluding.
The structures business that that is up for sale.
The overall cash flow for the business is 5 million positive for the quarter, which was a milestone to be positive.
And free cash uses only 3 million in the quarter after 8 million of Capex.
So we're not going to be updating or.
Structures core non core each quarter, but as there is meaningful changes to it we'll give you more information.
Okay. Thank you.
Our next question comes from Ron Epstein with Bank of America Merrill Lynch.
Hi, guys. This is key on Glante on for Rob today.
After the deal with the two and the 280 what are the remaining red programs in the portfolio.
Can you discuss the unit profitability and the cash programs.
Cash profile of these remaining programs.
So its structures and in product support we're running out of red programs.
No Weve product support is got clean performance is very close to their plan in fact, our product support.
Growing very nicely, we've been growing at about 6% CAGR since fyseventeen, we're really approaching two ex the market growth rate and because of their clean performance very good quality turnaround times, we're seeing additional customers.
Partner with us at the Air show you heard about our air France, KLM partnerships and that's because of core performance in structures.
Having resolved issues on the global 7500, the bell five to 5767747.
G 650, GE to 80.
And now the embury two are really running out of problems to solve other than growth and improving margins and cash from operations, which they demonstrated good performance in Q1, So we feel very good about.
Our structures business and integrated support we do have some smaller red programs that we're working closely with our customer to overcome those sometimes a program is read because of financials that may have been negotiated a very low price, sometimes its the delivery or quality issue, but what I've been encouraged by is our OEM customers are side by side with us and addressing these and as is always the case, there's things. They can do to help a program as well as triumphant. Some partnership is the key and that we expect to to be down to a very small set of programs by the end of this fiscal year and integrated systems as well.
And in terms of the cash cadence Caitlin you asked about the GE to 80 program, although it's resolved and actually we're very pleased the transitions there on time and on budget. There is still cash to go on that program as we mentioned before Theres 14 million in this quarter in Q1.
And we said there will be about 60 million of cash use in this fiscal year and it will be maybe $40 million of cash fees.
Next fiscal year.
And we're of course always try to do better on that but thats. The run out for the cash used on that on that program and that's the largest cash user the other program 747.
Is modestly cash positive this year and its use and I think around $40 million next year.
But those are the two big drivers of cash besides the advanced liquidations, which you know are 20 million a quarter in that segment.
Thank you that's that's very helpful and then switching gears.
Can you give us more color on your new strategy to partner with carriers.
MRO activities.
How is this approach different from your current approach and will your carrier partnership approach.
Increase your overall aftermarket capture rate or will you be able to increase margin or both if you could give us some color there that would be very helpful.
Sure. The answer is both both top line and margin growth.
Triumph has historically approached its integrated systems.
Aftermarket content, which is about 20% of the $1.1 billion.
As.
A bit of an after thought and we had these repair centers that were embedded in the in the OEM factories that we have.
But the priority was typically on a call. It OEM initial deliveries not aftermarket so by under our one company initiative, our product support people, who live and die by quick turnaround.
Limited backlog finding new work.
Our now helping the integrated systems people.
Claw back much of the the.
MRO work that they've lost.
And then typically.
Focused on spare sales, but not as much on repair and overhaul. So we're going to be expanding that that's going to benefit us as far as product support the big ship. There is that they used to be very transactional they would wait for customers to come forward with.
Their accessories structures.
Interiors.
That needed to be repaired.
But it was very one off.
And there was a good set of loyal customers, but our penetration wasn't as broad as I'd like.
So the shift is really going towards longer term partnerships, where we negotiate.
A complement of certain commodity a product whether its heat exchangers gearboxes accessory structures for their entire fleet.
And in doing so we have more annuity like revenue that we can really optimize our capacity and cost around and it will help us on our topline so where are already growing almost two times the MRO market CAGR as I mentioned, so we think theres a lot of upside and I'd like to see our after third party aftermarket business double.
In the future that that's the mandate given to the team and we have a lot of unaddressed market. We think we can pursue especially in Asia.
Okay, and one quick follow up to that.
As you increase your aftermarket capture rate, where you potentially displacing is this work that carriers are doing themselves or is it the type of work that's done by other amash shops.
So its typically the ladder if you look at the big players and MRO.
Ourselves standard Arrow A.R. and then the biggest competitors other it's a bunch of small companies that have set up shop, they've they've used the manuals.
And the spares that they buy from us to create repair capabilities, but they don't have our scale. They don't often have our customer relationships. They compete on low cost.
That's a big target for us and and we may ultimately acquire some of those smaller firms over time, but right now our focus and our track record dissolved into organic growth.
Thank you very much that's it for me.
Thank you.
Our next question comes from Myles Walton with GBS.
Good morning, guys lower federal on for Myles.
Good morning, good morning.
So just wanted to tackle the pensions I think you've got a 2 million pension contribution this year, but I think that steps up to 30 to 50 million over the next few years.
Thats just in the K at least.
And how what is the impact of that if.
With the falling rates that we're seeing in the bond market.
Yes, so the cash paid the funding for the pension plans. The most important part and it is only 2 million. This year, it's forecast to ramp up over time, if the performance of the plan doesn't exceed our assumptions, where the interest rates don't change to reduce the liability.
Usually it's the only the next year that's the most from after that those numbers fluctuate, but we do put a table in our K for the five year funding and you're right. It is going up to $39 million.
Overtime over the next year or two.
But that can that can change it will be a cash demand on the business and we have that in our forecast.
So given the cash amount of the pension on top of the 747 picking back up next year. The 280 still there and advance liquidations actually continue into next year, but maybe stepping down sounds like the cash is next year actually could be higher than this year.
So we've only given cash forecast for this year and lock and have between now and next year, but certainly we have growth and you see we had strong growth this quarter was 6% sales.
And $120 million more backlog in our Ks group.
The combination of sales growth margin improvement and cost reduction.
As long with along with potential portfolio actions are going to improve our cash profile from what you might think it could be right now.
Okay, Great and then just one other follow up the.
Depreciation amortization and the structures business picked up I guess, you guys sort of guided to that being.
Yes, good DNA being down 20 million at least on a pro forma basis. So just not sure what drove that up so much in the quarter.
Yes, it's a good observation that we actually took some equipment out of service and held for sale at the end of a program life. So we took some noncash depreciation on that that wasn't planned.
Okay, great. Thank you for the clarity.
Thank you.
Our next question comes from Sheila Kahyaoglu with Jefferies.
Sheila Your line is open you can ask your question.
Your phone line is muted could you. Please I meet the phone line.
We just want to move on to the next level.
Let's come back to Sheila Okay. Our next question comes from Ken Herbert with Canaccord.
Hi, good morning.
Good morning.
Dan and Jim I, just wanted to first ask I mean, you had good organic growth in the quarter I know, it's obviously only one quarter, but can you just walk through the puts and takes considering you you've maintained the guidance of sort of flat organic growth for the full year.
Is there any specific headwind you'd call out the rest of the year or is it just conservatism after one quarter.
No, it's really delivering out any past due backlog. We we've had a number of programs that have been ingest station in the last couple of years in development. And example is the GE leap and the rates have gone up.
At least for us on the order of 50% year over year. So we expect a big step up in revenue anti us in Q2 and with that burn off of the past due backlog and this is where our customers are in there helping us solve problems like raw material availability in some cases, we buy raw material under right to buy agreements from the customers or they source individual components and supply that to us and to other.
Suppliers and so we partner with them to say, Hey, if we want to get our deliveries ramped up and burn off past due backlog.
We need your help and that's going to benefit us a lot in Q2. So we don't have to go out and win new work to achieve our revenue cash and margin aspirations for Ti is enough why.
20, we just have to deliver out the commitments that we've already made.
Okay. So I guess it sounds like the full year topline guidance the revenue guidance, it's just conservatism based upon.
You know some puts and takes in the second half of the year.
I think thats fair and Q and Q2 as well.
Yes, Yes, we were just wondering particularly profitable and we hold our operating measures to their targets and yes.
Little bit of outperformance this quarter.
Could adjust in the second half of the year. So it's probably too soon to call any changes to the top line, but we understand where we would be leaning towards the top end of the range given our performance as first quarter.
Okay, great and if I could I appreciate all the incremental detail on your your aftermarket in your MRO strategy and is it fair to assume if you look at sort of the blended aftermarket or MRO growth of components in the total industry is sort of 4% and I know you've got.
Spare parts and pieces in there as well as MRO and repair and overhaul activity, but as we look forward on this portfolio that you're building in the partnerships is sort of two x. industry growth.
Beyond this year or beyond the near term a fair assumption with how you're putting the portfolio in place.
That's certainly our aspiration and we're almost already there as mentioned our assessment of the CAGR is about three and a half we've been running 6% a year. So we definitely think there is upside and with the growth of the fleet since entering service and some of those fleets now I would like 787, and Sept 37, Athree 20, starting to get more into their ammo MRO years, It's a nice.
Tailwind for us.
And this is why our Thailand facility is so important.
And I mentioned in my remarks that we hosted a symposium over in Thailand, and the turnout was fantastic we didn't tours of our operation.
120 customers 48 different.
Our reps.
120 reps from 48 different customers.
And you know.
In the past Singapore has been a big hub for Amro now, Thailand with their investments.
In their infrastructure are starting to grow so we're excited about it and we think that kind of growth rate is achievable.
Great. Thank you very much.
Our next question comes from Michael Ciarmoli with Suntrust.
Hi, Good morning. This is George on for Mike Congratulations on the good quarter.
A quick question to the previous comment on targeting DMR.
Business It seems like the partnership that you announced.
Just this month with regard to targeted to that.
You asked based carrier focused on interiors.
Which is kind of Oh, I guess less profitable aspect of the market.
As you kind of target clawing back this volume what is the percentage of the mix that you're targeting between the higher value.
Components that you highlighted in terms of gearboxes heat exchangers versus things, there or maybe lower profitability like interiors.
Okay first of all and glad you asked because most of the MRO work expansion. We're seeking is from integrated systems and components not from interiors. That's 0.1 0.2 is we get good margins on interiors.
I was surprised when I came to trying to find that I looked at as sort of a low tech business.
And our one of our first initiatives was to consolidate our four separate interior overhaul businesses into one down in Atlanta, and we've done that now.
And.
We haven't looked at potentially divesting it in past and and because our customers value what we do and we have a good financial performance, we're holding onto it. So it's a it's a growth channel, albeit small within product support, but its really not the beneficiary of the collaboration between integrate systems and product support.
Focus there is on our core actuator gearboxes hydraulics fuel comps.
And heat exchangers, and that's that ties back to the roughly 14 factories that we have integrated system. So we're going to keep doing interiors our customers like it.
There was a little bit of delay of induction of interiors in Q1.
As they fly the legacy fleet, a little longer and we expect that to reverse in the second half of the year.
Okay.
And I guess look.
Focusing and kind of turning the focus over to the defense portfolio. When we looked at the lineup of the defense programs Apache.
CH 47 Black Hawk.
And the rest it looks like.
In the near term, we're going to be experiencing a pretty significant mix shift from these legacy platforms being retired and new focuses on.
Other platforms.
Yes, specifically future vertical lift and others.
How do you feel about that transition and how are you shipping the product portfolio to.
Follow that trend.
Yes, I know its a very thoughtful question and we're on both were on sort of legacy programs like V 22 C 17.
We're on I'll call it ramping programs like the freighter and then we're on emerging programs like the TX now called advanced pilot trainer.
And the M Q2 5, as well as modernization initiatives like the CH 53.
We are supporting future vertical lift we're on several teams there we've got a really good mix of content.
I think the answer is you got to support both there is one missing piece, though between legacy support.
And new starts in the DRD, which is foreign military sales. So we're getting a lot of calls from both Boeing defense and Sikorsky.
To support them on their Fms aspirations, and I think that will be a gap fill or between the two.
Great. Thank you.
Thank you.
Our next question comes from kind of under with Cowen and company.
Yes, thank you and good quarter.
So maybe a little bit more on the cash flow.
I guess three questions first I believe the two is still read how is that doing and what's the profile of its cash use do you still expect the 80 million kind of.
Advances repayments to come in equal.
Amounts of 20 million a quarter and lastly give us an update on your cash tax profile for this year and for next year, and then sort of longer term.
Alright, thanks, guys.
So on it too.
Transitioning that program.
As T.K. the core program is using cash in the tens of millions, it's not that significant relative to the overall programs and the structures. There is some inventory liquidation will occur during this year as we transitioned the program that will benefit us.
So it's really not a big net cash user with is to consider for the balance of this year.
On on the 20 million a quarter that is our expectation going forward.
Not only this year, but next.
And the cash taxes.
There will be disclosed in our 10-Q, but.
It starts out a little slow because we had to refund in this quarter of several million dollars. So I think we had net cash in this quarter and then the balance will be out over the balance of the year.
I think we're down to three or 480 twos left chi to deliver and.
The SDK is ramping up their capabilities so.
We can see an end of our build on that program within the next few months.
Terrific and then you'd mentioned, having smaller red programs, but you're on the TX you're on the M Q2 5, both of which Boeing has indicated are going to be losers at the front end.
Can you give us some color on.
The programs that you have that are red or that might be read in the future as a result of kind of tough pricing.
On the early early part of the contract.
Although those are large programs to Boeing defense.
You know our content.
It's not huge and it is derived in the case of M Q2 5, it's mostly hydraulic components.
Support primary flight controls and Atlantic year, and whatnot, and we know how to perform on those.
Both programs APTP and M Q2 5.
Fairly long development.
Periods.
They're not crash efforts to do a highly compressed development with lots of concurrency in risk.
So we'll be building first articles and supporting the ground in early flight testing for a few years. So I don't view those as as challenging as lets say weve already a global 7500 was which took a very intensive.
And often concurrent development approach that led to a lot of Red program losses.
Ultimately the successful platform, but was expensive to execute so we are watching it closely I do.
Weekly reviews on programs.
That you mentioned.
My goal is to get those.
Stabilized and ramped up in development.
In the case of 18 M Q2 5, we have monthly calls with the Shelley lavender at Boeing Defense and I really appreciate her partnership because she wants to catch any.
I'll call it the departures from the plan of record and jump on on him quickly I met with her in St. Louis.
On the programs and the partnership is very strong. So we'll work through any development challenges. We have I think in the case of ABT. All the early risk reduction that was done pre contract award on the two prototypes one of which you know that just had its a.
Official first slide.
It's going to help reduce the overall risk so I'm not.
I'm paid to be nervous when I've got nothing to be nervous about so we stay very close to these but I don't think we faced the same red program risks in the past that we've seen as structures.
Thanks, so much.
Thank you guys.
Our next question comes from David Strauss Barclays.
Hi, guys. This is take couple of on for David today.
Morning.
Good morning, just on just could you guys talk through the full year guide for Aerostructures for on flat to down 4% organic revenue growth how much how much is on how much is Max and then you kind of call out that this is driven by sunsetting programs. So I guess the transitioning programs how much is that weighing it weighing down gross and then on what other sunsetting programs are there and they ask that and kind of transitioning program.
Sure, let me take a stab at that I think when we identify the transitioning programs to start with.
I think.
The.
G 650, if you recall, we just shipped at the lift assembled wing from Tulsa in July .
So we're moving to a king which has a lower volume. So that's one of the transitioning programs she to any shipping out this year.
So that volume to be going down over time.
Other programs of that have transitioned out this year. The global 7500 is part of it that ended.
In February so that volume is not here so in terms of comps against last year.
This is the kind of the key ones.
So obviously, we see that we have reduction in volume, but that was unprofitable cash using volume that we lost so you'll see that part of the reason for the.
A big reason for the margin enhancement and positive cash flows the programs. We've also the ones. We we plan to lose we negotiated out of there is a couple of programs that are.
About to ramp up she 500 600.
And also the new Navy Triton variant of the global Hawk, we've built the first few of those wings and now.
The Navy anticipates high rates over time, so there is a bit of mix change as well.
All right great.
Thank you and then I guess, assuming it assuming no further major divestitures when when do you think that the kind of organic growth could return to to add.
So.
Yes, I guess the the programs that are already in the backlog help.
The 767787 are benefiting our composites business in our Stewart.
Structural assembly facility, where we do the wind carry through structure.
And as they extend as the Triple seven that's also a tailwind.
I won't attempt to net those increases against the sunsetting programs.
Real time, I'll ask Jim maybe close back with you offline and give you that model but.
The the focus is not necessarily making structures a bigger business, it's making a positive cash flow and improving margins, we'd be happy with the business that was two thirds the size would had better financial performance.
Hi, Good morning, just just to add one more point.
Recall, our interiors business.
Not interior overhaul that original OEM installation.
Ducting for panels. That's also in structures and that continues to grow and perform well. So there was a solid piece within there that.
We're going to benefit from.
Okay. Thanks, guys. That's it from me.
Thank you.
Our next question comes from Sheila Kahyaoglu with Jefferies.
Yes, good morning, Dan Jim.
Apologies for earlier and just to follow up on the last question.
You do have a decelerating growth forecast for both I asked and answered yes.
It makes sense to what's rolling off and you're you're divesting cash losing businesses, but can you.
Talk about a little bit what are the growth drivers from here you mentioned athree that the 77 cents six seven how large are these programs and maybe if you could talk about that profile a little bit more.
Sure. We're on one of our top programs and integrated systems is the Athree hundred 20 family of products.
And that rate is stepping up.
And again these are our quantities to the OEM quantities might be a little differently, but going from 57 last year to 62 this year.
There's rumors of higher rates and Airbus that we would benefit from plus Airbus is doing new versions like the XLR. So we're competing for content that will enable that nexgen version longer range version.
Of the Athree hundred 20.
We're on Athree hundred 50 that that rate that ramp is also stepping up from roughly nine a month.
Although the Athree 80 is sunsetting.
We're still benefiting from.
New programs that are coming out of.
Boeing Embraer Gulfstream.
Lockheed Martin, we're increasing our F 35 content so.
As Jim mentioned earlier this diversification platforms is really important.
Three years ago, we were overexposed to the 747, which historically had been a profitable program with rates as high as seven a month now it's less than one so we don't want to be similarly exposed and as I mentioned in my remarks structures on 737 is not.
Hi content for us it's more systems content. So we're going to continue to diversify the base in the quarter, we had wins with Cessna as an example.
We're going to expand our rotorcraft business spending a lot of time with Sikorsky. The earlier question about the future vertical lift. So that's that's going to be a source of growth growth for us.
So I would say that's the theme.
His growth comes from diversity of platforms diversity of customers and then geographic diversity with more coming out of Asia.
Thank you for the color and then just related to your prepared remarks on the MRO market overall, given youve divested some structures programs does this change your aftermarket strategy at all.
No I don't think so.
The customers.
I'll use Bharti AIDS. An example, since it was high profile.
Concurrent with the decision to sell the wing program to bombard EA. We were given two awards from Mum Bharti. A one was an MRO award and one was a fabrication award and we since sold the fabrication business, but there was no break in customer relationships that precluded us from growing.
On those platforms, we don't really have any aftermarket content on the GE to 80.
And we're in discussions with Gulfstream on G 500 600.
650, but they do a lot of their aftermarket themselves. So I think the growth in aftermarket is going to be more from the commercial OEM carriers.
And expanding our business with customers already sport like Fedex.
Yes.
You know that Fedex operates the largest aircraft fleet in the U.S. and.
They do it in a very effective way based on close management of their.
Their MRO effort and there they like tribes performance that like our turnaround time I was in Memphis, a few weeks ago.
Talking about what we can do to better support them other channels besides structures and components.
And interiors that we can do and I'm excited about it so I'd say less from the structures programs, we divested in more from.
The.
The carrier fleet.
Okay. Thank you.
Thank you.
Our next question is a follow up question from mix or movie with Suntrust.
Michael Your line is open you can ask your question.
So just one follow up question on what you mentioned with the SMS there's several of your.
You know competitors are.
Placing them or positioning themselves as kind of turnkey providers and military and MRO to countries.
One stop type contracts too.
Bob rain and several UAE and several other locations.
Can you talk about.
The military MRO environment as a whole it seems like it's going to be one of those tailwinds for you that we'll outperform.
In the near term and I would say the medium term.
Yes, I don't think our approach.
Will be the same as the tier ones and I used to do that as a tier one either setting up or selling into those markets and.
When you when you control the platform you have much more influence.
Overage turnkey support.
We're triumph is we've got niches that we're very good at ill focus on one.
Thrust reversers.
Thrust reversers ruin a leading provider in the world on overall, and we know how to do it well we bring them in we induct them, we assess them and we provide tailored repairs and some things we used.
Parts that are reused from on hand, rotable inventories, sometimes its new parts, but because we do it well and fast.
Carriers will come to us and ask us to.
Supply those on quick turn so we're going to continue to sell in our niches, but we'll also partner with companies like Boeing Global services.
We met with them at the Air show and we asked them what are the unsolved problems globally.
In the MRO market, including military as you asked and they gave US a list of several.
Subsystems and components for which there is not a robust.
MRO market, so we're going to focus on expanding our niches into those areas of demand.
As opposed to going to customers and say will be a one stop shop that I don't think thats really in our capability set today and we're going to offer more value by doing what we do well does that hit your question.
That hits squarely. Thank you okay, great. Thanks.
Thank you ladies and gentlemen, this is all the time, we have for questions today I'd like to turn the call back over to Dan for closing.
Well, thanks for again supporting our call we're committed to a strong year enough why 20 and starting to see the benefits of all the tough restructuring work weve done for the last.
Three years and I appreciate all the investors stayed with us and the new ones that have joined us over the last year and we look forward to delivering on them in the coming quarters. Thanks.
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