Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Triumph Group Inc (TGI, Financial) achieved or exceeded strategic and financial objectives for fiscal year 2024 despite market dynamics.
- The company reduced total debt by over $700 million and accelerated deleveraging by 2 years.
- Triumph Group Inc (TGI) increased aftermarket revenues by 19%, which carry strong margins.
- The company improved systems and support adjusted EBITDAP margin by 70 basis points and free cash flow by $60 million.
- Triumph Group Inc (TGI) grew its total company backlog by 22%, driven by strong aftermarket demand and expanding participation in various platforms and markets.
Negative Points
- Overall earnings were impacted by $5 million in restructuring charges and continued margin weakness in the interiors business.
- Interiors profitability and free cash flow continue to lag expectations due to external headwinds.
- The company adopted a conservative fiscal '25 plan, reducing prior internal rate assumptions by 20% to 30% for Boeing platforms, impacting sales guidance by approximately $70 million.
- Triumph Group Inc (TGI) experienced a significant reduction in free cash flow forecast for fiscal '26, from $100 million to $56 million.
- Working capital usage is expected to be around $20 million to $25 million for fiscal '25, driven by inventory and lower shipment rates.
Q & A Highlights
Q: We thought interest savings could be greater than what you lost with the divestiture. So why did the free cash flow percent of sales forecast go down?
A: Jim McCabe, Senior VP & CFO: We conservatively assumed keeping the current first lien notes outstanding. We're being opportunistic about capital structure improvements, which may occur but are not guaranteed. This conservative approach is reflected in our forecast.
Q: Can you break out the pieces from the $100 million to $50 million free cash flow target for fiscal '26?
A: Jim McCabe, Senior VP & CFO: The divestiture reduced leverage and debt, but we gave up a higher-margin business. This led to slower sales growth and a lower EBITDAP base. Working capital assumptions are more conservative due to Boeing OEM rate uncertainties.
Q: How is the working capital usage impacting fiscal '25?
A: Jim McCabe, Senior VP & CFO: We expect working capital usage in the $20 million to $25 million range for the full year, driven by maintaining inventory for lower shipment rates and preparing for future rate ramps.
Q: What are the expectations for Boeing rates beyond fiscal '25?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: We adopted conservative assumptions for Boeing rates. For the 737, we forecast rates in the low 30s for fiscal '24, increasing to the 40s in fiscal '26 and hitting 50 in fiscal '27. We will update as Boeing finalizes their production needs.
Q: Can you provide details on the $75 million in pricing improvements for fiscal '25?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: The $75 million gross price increases will become effective this year, contributing to a 300 basis point year-over-year increase in EBITDAP margins. This is net of inflation and material cost increases.
Q: What actions are being taken to improve the profitability of the Interiors business?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: We are negotiating additional work from Boeing and other customers, implementing hedges for the peso, sourcing alternative raw materials, and driving labor productivity through lean events.
Q: What is the status of the Daher litigation regarding their acquisition of Stuart?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: The litigation is ongoing, and we are vigorously defending ourselves. The sale agreement includes terms that limit our potential exposure.
Q: How are you addressing the financial impact of the divested third-party MRO business?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: We are taking necessary actions to reduce short-term spend and offset the financial contribution of the divested business. This includes cost reductions and focusing on our core systems and OEM MRO business.
Q: Can you provide more details on the military OEM growth expectations?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: Military OEM growth is driven by programs transitioning from development to production, such as the SAAB Gripen, Boeing T-7A, and South Korea's KF-21. We expect continued improvement in military revenue.
Q: What are the long-term financial targets for Triumph Group?
A: Daniel J. Crowley, Chairman of the Board, President & CEO: Our goal is to achieve 20% or better on EBITDAP margins. The profile to get there has been slightly set back due to the divestiture, but we are on a good trajectory to hit 15% this year and continue to improve.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
