Triumph Group, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group conference call to discuss our third quarter fiscal year 2021 results. This call is being carried live on the Internet. There is also a slide presentation included with the audio portion of the webcast. Please ensure your pop-up blocker is disabled if you're having trouble viewing the slide presentation. You are currently in a listen-only mode. There will be a question-and-answer session following the introductory comments by management. On behalf of the company, I would like to read the following statements. Certain statements on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risk uncertainties and other factors which may cause Triumph's actual results performance or achievements to be materially different from any expected future results performance or achievements expressed or implied in the forward-looking statements. Please note that the company's reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the press release, which can be found on their website at www.triumphgroup.com. In addition, please note that this call is property of Triumph Group, Inc., and may not be recorded, transcribed, or rebroadcast without explicit written approval. At this time, I'd like to introduce Daniel J. Crowley, the company's President and Chief Executive Officer, and James F. McCabe, Jr., Senior Vice President and Chief Financial Officer of Triumph Group, Inc. Go ahead, Mr. Crowley.

Thank you, Kevin, and welcome everyone to Triumph's Q3 earnings call. I hope you're all safe and well. Today, we reported our third quarter results for fiscal year 2021, trying to achieve positive free cash flow due to our progress in improving profitability and managing working capital across all levels of the organization. As our pivot to military sales accelerates, we delivered sequential improvement in our operating margins in EBITDA, and we expect to build on that through the fourth quarter. The commercial aviation recovery is progressing, albeit slowly. Our customers saw higher freighter utilization and increasing levels of air traffic, which has resulted in increasing MRO demand for the 12 repair centers across Triumph. After months of rate cuts, OEM production has stabilized, with commercial narrow body volumes expected to increase at both Boeing and Airbus over the next year, offsetting commercial wide body volume declines. When combined with these favorable macro trends, our actions to improve our cash flow and restore margins generate positive momentum and position triumph to close out our fiscal year on an upswing as we did last year pre-COVID. After managing through the commercial downturn in the first half, we delivered quarter-over-quarter improvements in our core operations driven by favorable trends in systems and supports, military helicopter, and engine content. and strengthening Airbus narrow-body production rates. This is an example of the hidden value we see in Triumph's diverse capabilities. Triumph supplies flight-critical components, usually based on our design and under sole-source contracts, that are replaced multiple times over the life of an aircraft with a substantial aftermarket tail. Despite pressures on commercial wide-body aircraft, We continue to see modest growth in backlog in systems and support as orders on commercial narrow body and military platforms expand. Overall, Triumph's third quarter results are either in line with or above our expectations, keeping us on track to meet our full year objectives. Let me walk you through some of the highlights as summarized on slide three. First, we generated positive free cash flow through tight working capital management. Second, Margins improved in both business units as we continue to drive operational improvements and enhance the quality of our backlog. Third, with the exit of our Hawthorne, California 747 factory and planned exit of the Grand Prairie 747 plant in June, we continue to progress towards our future state. Last, we've maintained nearly half a billion dollars in liquidity while contributing 40 million in stock to our pension plan, which lowers future cash obligations. Together with the pending divestitures, we have the liquidity to fund the company through this historic downturn. We now have a line of sight to break even free cash flow in Q4 after all debt and advance repayments and expect cash used in operations and free cash used for the full fiscal year to be on par or moderately better than current year-to-date levels. Our third quarter results are a story of progress on two parallel tracks. First, Within our core systems and support business, we continue to improve operations as evidenced through the second consecutive quarter of sales growth and improving operating margins. Systems and support reset capacity to match lower levels of production with improved efficiencies and enhanced margins on programs that were previously challenged and or underperforming. For example, our landing gear actuation business in Yakima, Washington, which supports the 737 MAX, amongst other platforms, improved its Q3 operating income year-over-year by 18% through productivity gains and favorable contract renegotiations. As the MAX rates recover, our lower cost basis will benefit margins, another indication of the hidden value in our proprietary components across systems and support. On the second track, our structures business continues to achieve success in completing and exiting legacy programs. We finally achieved break-even cash on the completion of the G-280 and are within two quarters of completing our applications on the 747-8 program. Now let me touch on each of the drivers for the third quarter as outlined on slide five. Military sales now comprise 56 percent of our volume in systems and support, helping to offset the impacts of the commercial aerospace market headwinds. Military platforms such as the V-22, CH-47, and E-2D contributed to the sequential sales growth in our core systems and support business unit, driving a 33% increase to our military sales year over year. By shedding the legacy cash-consuming programs such as the G-280 and ramping down our 747 content, our margin profile has improved overall. In structures, we eliminated all red programs and will be green across the board by March. Structures was modestly profitable in Q3, and absent program shutdowns and advance repayments was cash positive. We expect to continue to improve quarter over quarter and drive consistency in future periods. Q3 cash use on sunsetting programs was lower than expected, in part due to the push out of the 747 by one quarter. We have less than three shipsets remaining to deliver on the program. In Q3, we generated over $30 million in free cash flow due to working capital management and proving margins. We expect Q4 cash to be breakeven to positive based on the actions we've taken to date. We remain on track to start fiscal year 2022 in our future state configuration as a largely pure play systems and support provider to military and commercial customers with interior structures capabilities as well. On slide six, I want to drill deeper into the sources of Triumph's hidden value. Listed here are the products and services that we provide unseen to the eye underneath the skin of the fuselage that are so critical to the safety and efficiency of the aircraft. Whether it's cockpit controls, actuators, the nose wheel steering, landing gear, fuel pumps, hydraulics, or the services we provide for wheels and brakes, nacelles, and engine accessories, These products and services are important to the customers and to Triumph's financials, and they represent the future of the company. I'd like now to share my perspectives on the path to recovery for the commercial aviation industry as summarized on slide seven. Aviation industry metrics remain largely stable. Numbers of flights, TSA throughput, load factors, and utilization all remain stable on a global basis. However, Like in many industries, the effective rollout and distribution of the vaccine and containment of new variants is key to unlocking the aviation industry recovery. Like the rest of you, I'm pleased to see the progress that's being made and will continue to closely watch the ongoing efforts. Industry-wide, in 2020, 723 commercial transport aircraft were delivered. In the quarter, Airbus delivered 225 aircraft, while Boeing recommenced deliveries of the 737 MAX. In December, 112 aircraft were delivered to customers, ending the year on a high note. OEM production rates have stabilized, and order adjustments have been flowed down to triumph. Canada, the U.S., Europe, and China are all making great progress on certifying the MAX to return to service. Three quarters into this crisis, we're able to look back and recall the unprecedented impact to the industry while recognizing Signs of Recovery Today. Slide 8 depicts the early impact of Triumph's core systems business in Q1 as orders declined due to cancellations and reschedules. At that time, Q1 book-to-bill dropped to .15, driving backlog down 14%. Undeterred and coming off a good fiscal year 20, Triumph continued to execute on our strategic objectives, pivoting to military and freighter end markets and executing on our cost control measures. Despite reductions in commercial traffic and OEM rate adjustments, military sales are up more than 30%. Grenade sales are down 25% overall, but in Q3, backlog once again began to rise, as booked a bill for Q3 was 1.02. Today, systems and support backlog is 55% military, and looking forward, The systems and support pipeline is 73% military, reflecting our continued focus in this area. Turning to slide nine, Triumph closed $400 million in new wins for the quarter across OEMs, Tier 1s, and carriers. Slide 10 touches on three key wins, including the renegotiation and extension of several of our largest commercial transport contracts, a CH-53K helicopter ward, and a host of MRO awards driven by Triumph IP. The CH53K is a key platform for Triumph with IP-driven content in excess of $2 million per ship set. Note that also Q3 marked the first time since the onset of the crisis that Triumph sales and repairs, overhauls, and spares grew quarter over quarter. In summary, Q3 was a good quarter. and the actions we have taken through the unprecedented crisis have positioned us for a return to profitable growth as we look forward to Q4 and the new fiscal year. With that, Jim will now take us through more results for the quarter. Jim?

Thanks, Dan, and good morning, everyone. Nine months ago, as the pandemic persisted across the globe, we had not yet bounded its impact on our revenue and operations. Despite that uncertainty, We provided full-year sales guidance and continue to hold that guidance through today. We reacted quickly to reduce our cost of working capital to the lower demand and to secure our liquidity. We amended our revolver to maintain covenant compliance. We renegotiated customer advance repayments. And then we raised $700 million in a bond offering to pay off our revolving credit facility, which eliminated our maintenance covenants and put substantial cash on the balance sheet to enhance and secure our financial flexibility. In the first half of the year, we used about $250 million of cash as we were reducing our expenses and honoring our inside lead time purchase commitments while we adjusted purchase orders to reduce customer demand. Now in the third quarter, Triumph is cash positive again, sooner than we had planned. We exceeded our third quarter cash flow and earnings plans and are on track to achieve our full year objectives. 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 11, you'll find our consolidated results for the quarter. Planned reductions from sunsetting and transitioning programs in our structure segment drove our decreased sales compared to last year. Despite the headwinds, adjusted operating income was $38 million this quarter, and our adjusted operating margin was 9 percent, up sequentially from $21 million and 4 percent last quarter. We're gradually improving profitability on an adjusted basis quarter over quarter. With respect to the segment results, on slide 12, net sales in our systems and support segment were up 4% sequentially, including a 10% increase in sales on Airbus commercial platforms. This segment's sales were about 55% military this quarter, up from only 31% in the prior year quarter. Adjusted operating margin for systems and support was 16.6%, which is comparable to last year and up sequentially over the last quarter. The $24 million impairment of rotable inventory related to customer fleet retirements and our $1 million of restructuring costs impacted the segment's margins this quarter by approximately 935 basis points. Summarized on slide 13, third quarter organic net sales for our aerospace structure segment were down as anticipated due to planned sunsetting and transitioning programs, as well as declines in commercial programs. Aerospace structures achieved three consecutive quarters of favorable cumulative catch-ups due to strong performance and effective program closeouts. This group's actions to aggressively reduce costs resulted in $3 million of restructuring costs in the quarter. Excluding those costs, operating margin was consistent with last year at 5%. The only lost program of significance left is the 747, which were focused on closing out as efficiently as possible. Production is ending in about six months, and then we will close and clean up the leased facilities. Turning to slide 14, as discussed in prior quarters, in the first half of the year, we experienced a temporary increase in our working capital as we adjusted our supply chain to the new lower demand. Our $38 million of cash flow in the third quarter was better than planned and driven by a net decrease in working capital. Q3 cash flow includes $10 million of advance repayments. and we have approximately $180 million of advances outstanding to be liquidated over the next few years. Restructuring costs were $4 million in the quarter and $33 million year-to-date. The G280 and 747 programs were breakeven in the third quarter and have used $50 million year-to-date. Completion of aerospace structure sunsetting programs, primarily 747, is expected to use $20 to $25 million in the fourth quarter and an additional $50 million in FY22. Capital expenditures were $8 million in the quarter, including upgrading equipment in our core systems and support segment. We remain focused on aggressively managing our cash and liquidity. We anticipate being breakeven to slightly cash flow positive in Q4. On slide 15 is a summary of our net debt and liquidity. Our net debt at the end of the quarter was approximately $1.6 billion, and our combined cash and availability was about $489 million. In the quarter, we contributed $40 million of stock to our defined benefit pension plan, creating a funding credit towards FY22 required contributions, resulting in an estimated $18 million of FY22 cash funding required. We forecast to have ample liquidity even before any further liquidity-enhancing actions. SG&A expense this quarter is 26 percent lower than last year, reflecting our continued cost reduction initiatives. We also have an excess of $300 million of deferred tax assets that continue to create value through reducing cash taxes. Based on anticipated aircraft production rates, and including the impacts of pending program completions, for FY21, we continue to expect revenue to be approximately $1.8 to $1.9 billion. We expect free cash use for the full year to be on par with, or moderately better than, the nine months ended Q3, with break-even deposit free cash flow in the fourth quarter. Our backlog is up slightly in our core systems and support segment and more balanced with higher military content. Our focus on our operating system, coupled with our cost reduction actions, improves our competitiveness and adds value for our customers. We are forecasting strong liquidity and continue to evaluate additional actions to further enhance our liquidity and our capital structure. The measures we are taking to manage this downturn are making us a stronger and more competitive company moving forward. Now I'll turn the call back to Dan. Dan?