Triumph Group, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group Conference call to discuss our fourth quarter fiscal year 2021 results. This call is being carried live on the internet. There's also a slide presentation included with the audio portion of the webcast. Please ensure that your pop-up blocker is disabled if you're having trouble viewing the slide presentation. You are currently in a listen-only mode. There'll be a question and answer session followed by introductory comments by management. On behalf of the company, I would like to read the following statement. 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 this call is property of Triumph Group, Inc. It 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 chairman 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 Q4 earnings call. I hope that you're all safe and well. Earlier today, we reported our fourth quarter and full year results for fiscal year 2021. I'm pleased to share that Triumph delivered positive free cash flow for the second consecutive quarter, driven by improving profitability and effective working capital management, all while we continue to recover from the pandemic and execute on our portfolio transformation. Furthermore, our team achieved these results despite the severe weather that impacted our sites and people across the southern U.S. in February. We saw encouraging macro trends this quarter on multiple fronts, The continued progress on vaccine distribution and declining COVID-19 cases in the U.S. fueled steady increases in demand for commercial aviation, which translated into higher orders for maintenance, repair, and overhaul work. Triumph was one of the first companies to report higher MRO demand, which provides faster financial impact versus longer cycle programs, and contributed to quarter-over-quarter improvement in our core operations as we begin to put the commercial downturn behind us. I'll touch on this more later. Favorable trends in systems and supports, military helicopter and engine programs, and strengthening Airbus narrow-body production rates were key contributors to our recovery and reinforced the hidden value of Triumph's diversified customer base and platform content, which has been masked by the pandemic and the portfolio optimization actions we've taken over the last few years. We're optimistic that this upward trajectory will continue. These tailwinds, coupled with our comprehensive actions to improve cash flow and enhance margins, create positive momentum as we enter fiscal 2022. We're going to grow our company sustainably and responsibly. At Triumph, we believe in the power of and. That means we'll continue to work hard to achieve financial success and enable the safety and prosperity of the communities we serve and in which we live. Overall, we're pleased with Triumph's fourth quarter results, which are either in line with or above our expectations, enabling us to meet our full year objectives. Let me walk you through some of the highlights summarized on slide four. First, we generated positive free cash flow through strong deliveries, collections, and effective management of working capital. Next, our core systems and support business achieved its third consecutive quarter of sequential organic growth With 14% revenue growth and expanding margins, we continue to drive operational improvements and enhance the quality of our backlog. Third, with the closure of our large structures divestitures and ongoing 747 closeout, we continue to execute on our commitments and remain on track towards our future state configuration. Last, we took several actions to strengthen our balance sheet and improve our liquidity position. including raising approximately $145 million through an at-the-market equity offering during the quarter and reduced our debt. Years of streamlining our portfolio and upgrading our talent and processes helped Triumph to weather the pandemic last year. The value that Triumph offers is showing through in our results and will become more apparent as we continue to execute our future state strategy. As we near completion of our transformation to a stronger company, centered on our profitable core, we kicked off our fiscal 2022 in April with a renewed focus on driving growth and greater operational efficiencies while continuing to emphasize sustainable shareholder value creation. Though the macro trends are positive, we recognize that the market recovery will continue to be uneven over the next several quarters. As a result, we're prudently maintaining our cost savings austerity measures from last year with intentions to reverse them as the market continues to improve. Our actions, combined with OEM and MRO rate increases, will support expanded margins and cash flow, putting us on a path to deliver the company year over year. On slide five, I summarize the drivers for this quarter's results. First, within our core systems and support businesses, we continue to improve operations as evidenced by the third consecutive quarter of sales growth and improving operating margins. Systems and support revenues increased across all end markets in both OEM production and MRO quarter over quarter. Systems and support also reduced inventory by 30 million in the quarter through increased efficiencies, expanded relationships with distributors, and raised margins on programs that were underperforming before. One example, our mechanical controls and components business in the U.S. and Europe provides a broad range of proprietary products across both aircraft and shipboard platforms. They improved both their Q4 revenues and operating margin quarter over quarter by 10%. Triumph grew our distribution network for both commercial and military OEM products and adjacent infrastructure markets. The breadth and depth of our proprietary products and distribution channels across diversified end markets and customers are further indications of the hidden value in our systems and support business as summarized on slides six and seven. Fiscal 21 was the first year since 2010 when revenue from our systems and support business exceeded that of our structures business as we win new systems content and run out our legacy structures programs. Q4 cash use on sunsetting programs was lower than expected, in part due to continued improvement on the 747 program. We will deliver our final 747 structures in our second quarter, at which point Triumph will have fulfilled our program obligations. We will then close down the second of two large factories dedicated to the 747, ending a long period of losses. Military sales now comprise 51% of our turnover in systems and support, helping to offset the impacts of the commercial aerospace market downturn. Recall I set a goal to expand our military revenue from 20% of sales in 2016 to 30% at the company level. We are now at 38%, and we are up 25% in terms of absolute dollars as we grow our military content across the life cycle from development to production to sustainment. Military platforms such as the E2D, V22, and CH47 contributed to the sequential sales growth in our core systems and support business unit, driving a 22% increase in our military sales year over year. Shedding the legacy cash-consuming programs and stabilizing performance across all the structures allowed them to be modestly profitable in Q4 on an adjusted basis. Absent program shutdowns and advanced repayments, structures generated positive cash flow, As an update on our exit of our non-core structures businesses, on May 10th, we announced the completion of our sales of our composites and military structure sites to Arlington Capital Partners, demonstrating continued progress on portfolio reshaping. The proceeds from these transactions will be used to pay down debt. These divestitures represent an important milestone to reconfigure the business. Over the last few years, we've sold or closed 42 facilities out of 75. An enormous achievement considering that many of these actions were completed in the midst of the pandemic. We're now down to just a handful of facilities and programs left to address. I want to recognize the Aerospace Structures team for their dedicated work to simultaneously navigate the crisis, improve operational performance, and exit non-core operations. In Q4, we generated over $16 million in free cash flow due to improving margins and prudent working capital management, with further improvement in inventory turns possible. During the quarter, we successfully accessed the equity markets and raised $145 million by selling shares through an at-the-market offering, and we applied a portion of these proceeds to retire some $64 million of senior notes due in June of 2022 below par. We recently called the remaining outstanding June 2022 notes and expect those to settle by the end of Q1. Together, these actions further strengthen our balance sheet and extend our material outstanding debt maturities to 2024. We remain on track to achieve our future stakes figuration as a largely pure play systems and support provider to military and commercial customers with interior structures capabilities. I'd like to go into more detail on the path to recovery for the commercial aviation industry as summarized on slide eight and its expected benefit to triumph. As COVID cases have declined in many parts of the world, our airline customers have expanded routes and flights primarily in the U.S. and China. Flight bookings improved from prior quarter and are now 46% of 2019 levels. On May 4th, TSA throughput reached 1.6 million passengers, a new high since the start of the pandemic. Flight traffic numbers are improving, where load factors have stabilized around 75%, a number which allows operators to begin nudging pricing towards sustainable profitability. Global capacity and park fleets are also moving in the right directions, and we're encouraged by what we're hearing from our customers in terms of anticipated ramp-ups. OEM production has remained stable despite temporary disruptions due to the 787 structural inspections and 737 MAX electrical modifications. Commercial narrowbody volumes are expected to increase at both Boeing and Airbus over the next year, and we're prepared for this ramp in calendar 2022. While our MRO inputs in the quarter were affected by the weather impacts, the mix of orders across Triumph was biased towards more extensive overhauls, such as the KC-10 tanker refueling boom. As the aviation industry continues to recover, we expect to see increased bookings, higher load factors, and more sustainable fare levels, and additional aircraft return to service, all of which will drive improved MRO demand. Turning to slide 9, Triumph's military and government end markets outperformed again, with revenue up 22% in Q4, mitigating commercial aviation volume declines. Triumph's military and commercial MRO sales both experienced sequential improvements of 25% and 33% respectively. Recall MRO is a fast-turned business where we book and ship within a 30 to 45-day cycle, so it's a good early indicator of an emerging aviation recovery. We believe our profitable MRO business will lead Triumph's financial recovery. The business is well-positioned to capitalize on returning demand, including MRO support to our OEM equipment content across all end markets. We continue to expand our independent third-party MRO business with new proprietary repairs as a designated engineering representative. This is another example of Triumph's hidden value as we address the entire lifecycle of an aircraft. A comparison of sequential quarters highlights encouraging signs in commercial traffic. Shipments on all Boeing commercial transport platforms rose from Q3 to Q4 in aggregate by more than 30%. A positive signal is inventories and buffer stock benefit from stable production. No doubt the pandemic has impacted demand in the short term. TSS backlog declined in the quarter, consistent with the decline in production rates. To the good, military and government end markets account for more than 50% of systems and support sales and 55% of their backlog. Turning to slide 10, Triumph closed $350 million in new wins for the quarter across OEMs, Tier IIs, and operators. GE awarded us the afterburner fuel pump contract for the T7A trainer, where we already have strong ship set content. While we're known for our helicopter fuel pumps and hydraulic pumps and engine controls, we have a very strong franchise in military fighter fuel pumps, designing and building main engine gear pumps and centrifugal fuel pumps, for multiple platforms. We're also hard at work developing high performance pumps for the next generation military fighter engines. Triumph was also selected to design and build the landing gear system for the Sikorsky Raider X next gen helicopter. We've expanded our existing content through an award to design and build weapon bay door actuators as part of our support to both future vertical lift development programs. This new business chart highlights the diversity of our customer base, capabilities, and platforms. Turning to slide 11, I highlight strategic awards on the T7A Trainer, as well as recently completed renegotiations for high-performance gearboxes on the CH53K and Bell 429, where we are the sole source provider. These wins underscore our position as the largest independent source of complex gear solutions to both military and commercial end markets. As highlighted on slide 12, our core systems and support business had a strong fiscal 2021 with over a billion in sales from a balanced mix of production and MRO work across both military and commercial end markets. Longer term, we forecast a return to pre-COVID-19 levels of sales with margins of over 20% and strong cash conversion. To summarize, We stabilized the company and balance sheet after the pandemic last year. We grew margins quarter over quarter and generated solid cash flow in the second half of what was no doubt the company's most challenging year. We expect to continue to grow our core organically and expand margins through fiscal 2022 and beyond due to continued cost reductions, operational efficiencies, anticipated changes in product mix, and new pricing opportunities. We will continue to invest in our people, operations, and products to enhance shareholder value year over year. With that, Jim will now take us through the results for the quarter in more detail. Jim?

Thanks, Danny. Good morning, everyone. We ended our fiscal year with another solid cash-positive quarter. Reflecting on the past 12 months, we entered FY21 with strong momentum from the prior year into a period of significant market uncertainty. Commercial air travel was at its lowest rates in recent memory, OEMs were rapidly reducing production rates across the board, and Triumph was facing the constraints of its financial debt covenants. In keeping with our values, we acted with velocity to ensure the safety and welfare of our workforce, to aggressively reduce costs, to amend our debt covenants to maintain compliance, and to accelerate exits from non-core and underperforming assets and programs. After the trough of our fiscal Q1 last year, when we used over $200 million of cash, we were reducing expenses and honoring our inside of lead time purchase commitments while we adjusted purchase orders to the lower customer demand. 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. Since then, we've delivered quarter-over-quarter improvements in key metrics in our core systems and support business, exited work in the G650 and G280 wing programs, and moved closer to the end of our obligations on the 747 contract. We exceeded our fourth quarter cash flow and earnings forecast and achieved or exceeded our full year objectives. Fiscal 21 was an eventful year, and I'm incredibly proud of the work we have done to navigate the pandemic and position Triumph for continued improving performance headed into FY22. 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 13, you'll find our consolidated results for the quarter. Planned reductions from sunsetting and transitioning programs in our structure segment led to lower sales compared to the prior year. Despite the headwinds, Q4 adjusted operating income was $33 million. Adjusted operating margin was 7%, up 138 basis points from the prior year. We continue to improve profitability on an adjusted basis quarter over quarter. Turning to slide 14, you'll find our fiscal 21 results. Our net sales were impacted by our sunsetting and transitioning programs, and our mix of sales included sizable military and market growth. Our full-year adjusted operating income was $108 million, representing an adjusted operating margin of 6%, down slightly from the prior year. With respect to the segment results, on slide 15, net sales and systems and support were up 14% sequentially. including a 31% increase in sales on Boeing commercial platforms and benefited from adjacent market captures and infrastructure. This segment sales were 52% military this quarter, up from 23% in the prior year quarter. Adjusted operating margin for assistance and support was 14%, which is comparable to the prior year and up sequentially over last quarter, excluding one-time items. Summarized on slide 16, Fourth quarter net sales for structures were in line with expectations, driven by planned sunsetting and transitioning programs, as well as reduced demand on commercial programs. Despite the headwinds, net sales increased 2% sequentially. Structures now has four consecutive quarters of favorable cumulative catch-up adjustments due to strong performance and effective program closeouts. Our actions to aggressively reduce costs resulted in $16 million of restructuring costs in structures in the quarter. Excluding these costs, operating margin was 2%, up slightly from the prior year quarter. Aerospace structures revenue will be lower, but higher quality moving forward due to the divestitures, the business jet program exits, and the end of the 747 program. Turning to slide 17, at the start of the year, we experienced a temporary increase in our working capital as we adjusted our supply chain to the new lower demand. Our $17 million of cash flow in the fourth quarter was better than forecast and driven by a net decrease in working capital in the quarter. Q4 cash flow included $10 million of advance repayments and approximately $10 million of cash use on the 747 program. In Q4, we incurred $20 million of restructuring costs, which were accrued in the quarter but will largely impact cash flow in Q1 fiscal 22. In addition to the cash restructuring costs, other key drivers impacting our FY22 cash flows are listed, including expected advance repayments, 747 spend, and certain customer settlements. Capital expenditures for the full year of $25 million included $15 million in systems and support to continue to enhance productivity and competitiveness. We anticipate approximately $30 million of capital expenditures in FY22, including $22 million in systems and support. We remain focused on aggressively managing our working capital. On slide 18 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 combined cash availability was $624 million. In the quarter, we received $145 million in net proceeds under our at-the-market equity offering and retired $63 million of our 2022 bonds at slightly below par value. Lastly, through the American Rescue Plan Act of 2021, we benefited from the changes to the required funding for our pension plan, reducing the FY22 obligation from $18 million to about $2 million. The reduction in required pension funding over the next four years exceeds $150 million. The updated required pension funding estimates are approximately $1 million per year from FY23 through FY26. Our net debt increased by less than 4% for the year, far below the net debt increase at many other A&D companies and airlines. After our fiscal year end, following the completion of our structures divestitures, we announced the mandatory pay down of approximately $113 million of our first lien notes. In addition, we have called the remaining $236 million of outstanding 22 notes. These transactions are expected to be completed during our first quarter. Together, they will reduce our debt by approximately $348 million and reduce our cash interest expense by about $22 million per year. We also have over $500 million of deferred tax assets that continue to create value through reduced cash taxes moving forward. Regarding guidance, due to the uncertainty of the inflection points in the commercial aviation recovery, we are deferring providing guidance until later in the year. Our focus on our operating system, coupled with our cost reduction actions, improves our competitiveness and adds value for our customers. FY20 saw Triumph making the turn. Through the first half of FY21, we managed the commercial downturn, and through the second half, we have done even better, as we delivered on our commitments and achieved quarter-over-quarter improvements in our core operations. We believe that FY22 is a bridge year. The prior cost reductions and operational efficiencies will help us continue to improve margins as volumes gradually and sometimes unevenly expand. The measures we have taken and are taking to managing this downturn are making us a stronger, more competitive, and sustainable company moving forward. Now I'll turn the call back to Dan.