Triumph Group, Inc.

Welcome to Triumph Group's third quarter fiscal year 2024 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will 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 introduce Tom Quigley, Triumph's Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to our third quarter fiscal 2024 earnings call. Today I'm joined by Dan Crowley, the company's Chairman, President, and Chief Executive Officer, and Jim McCabe, Senior Vice President and Chief Financial Officer of Triumph. As we review the financial results for the quarter, please refer to the presentation posted on our website this morning. We'll discuss our adjusted results. Our adjustments and any reconciliation of non-GAAP financial measures to comparable GAAP measures are explained in the earnings press release and in the presentation. 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 risks 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. Dan, I'll turn it over to you.

Thanks, Tom, and welcome to Triumph's third quarter call. I'll open my remarks by covering the strategic action we took with the product support sale and the significant benefits it will provide. then Jim and I will discuss our Q3 performance and the primary factors impacting our results and our expectations for record Q4 results to end the fiscal year on an upswing. I'll wrap up with the growth drivers which instill confidence in our multi-year outlook. Overall, I'm excited about Triumph's future and our ability to deliver expanding levels of profitability and cash flow. This is our first opportunity to discuss the recently announced sale of our product support business, which remains on track to close this quarter. For Triumph, this is a game-changing transaction, one that will provide both financial and strategic benefits. During our September 2023 Investor Day, we communicated Triumph's priorities and path to accelerating value creation in line with our stakeholder priorities. De-levering our balance sheet has been a top priority. This transformative divestiture will significantly accelerate our delivering progress by reducing our net debt by over 40% and materially reducing our interest carry as early as this March following transaction closure. On Tuesday, we provided a conditional notice on the repayment of certain of our bonds. Jim will provide more color on this later. As summarized on slide three, the divestiture truly represents a win for both our shareholders and bondholders. And it's entirely consistent with our strategic plan to focus on differentiated components and systems of our own design and to own our aftermarket tail. We combine with expanding free cash flow and earnings from our remaining operations. This transaction positions triumph to enter a recursive cycle of financial improvement with higher free cash flow and lower debt to accelerate our growth and shareholder value creation. As shown in slide four, post-closing, Triumph will compete in four primary business areas. Actuation products and services with 12 sites focused on hydraulic and electric actuation and mechanical controls. Systems and engine controls with three sites servicing the fuel and thermal control markets. Beard solutions with two sites providing power transmissions integrated gearboxes and loose gears, and interiors with five sites producing thermal acoustic insulation systems, composite ducting, and cabin components. These are competitive businesses, which benefit from our lean transformation and diversity of customers and platforms. Post-closing, substantially all of Triumph's sales will be IP-based and or sole-sourced. We are taking immediate steps to right-size the remaining company with an optimized cost structure that builds on the operational improvements implemented during our transformation and ensures we are well positioned to achieve our long-term financial and operational targets. To be clear, we expect to continue our steady progress towards 20% EBITDA margins and free cash flow conversion of 10% of sales or better over the medium term on the strength of Triumph's IP-based product portfolio. As I reflect on the third quarter that ended in December, there were clearly challenges. However, I'm pleased with our ability to generate seven consecutive quarters of organic sales growth and to achieve positive free cash flow. Turning to slide five, I'll summarize the highlights from the quarter. Triumph generated year-over-year organic sales growth of 13%. driven by increasing commercial OEM production rates. Even excluding our discontinued third-party MRO results, our aftermarket sales increased year over year, with spares and repairs accounting for a robust 26% of our Q3 sales. MRO sales will continue to be a valuable financial driver for Triumph after the sale. We grew our total company backlog by 20%, above market growth rates, as Triumph expands its participation in a broad array of platforms, customers, and end markets. Our year-to-day book to build for Triumph was a very strong 1.34. And as part of the mentioned right-sizing efforts, we initiated $40 million in cost reduction actions across the company to mitigate any short-term margin dilution from the product support sales and to achieve the long-term earnings and cash metrics we presented at our investor day. While Q3 sales were strong, earnings and free cash flow came in below expectations as a result of delayed shipments due to a finite set of supply chain shortages and continued margin weakness in our interiors business. I'll cover both topics head on and provide facts supporting our confidence in our full year forecast. First, on the delayed deliveries, Although our overall supplier on-time delivery in full metric improved from 90% to 92% sequentially over Q3, we still experienced shortages, which held up higher margin deliveries and contributed to our working capital balance. The specific late deliveries in Q3 were primarily machine components, electronics, castings, and bearings. Triumph staff are onsite at these suppliers, expediting shortages and developing alternate sources for the future. I've been in touch with the CEOs of these firms to secure their commitments to make their fourth quarter deliveries, and we're seeing the results early in Q4. January deliveries were solid, with monthly sales of approximately 100 million, which supports our Q4 forecast. We expect over 50 million of inventory to be relieved in Q4. In many cases, we've already completed all Q4 products and are waiting on customer approvals to ship and collect. Customer demand is firm, meaning there's no new orders that are needed to close the fiscal year. Interior sales increased by 26% in the quarter, so only 15% of Triumph's total sales. That said, Interior's profitability in the quarter and free cash flow continue to lag expectations in Q3, due to the previously mentioned headwinds of labor and material inflation and the peso exchange rate. However, these results are about to change. We expect interiors to generate mid- to high-teens EBITDA margins in RQ4 as a result of the following actions. Contract price adjustments where customers have specified sole source material callouts and developing alternative sources for those products where suppliers have raised their input prices. Increased labor productivity from the lead events we initiated earlier this year to offset the minimum wage increases affecting all companies doing business in Mexico. I encourage you to view the videos of the two plans posted in Triumph's website or LinkedIn page to see some of the improvements and the 2,000 plus men and women behind them. And then lastly, overhead absorption benefits from additional work we have been asked to take on from our competitors who are not supporting the OEM ramps, a sign of our customers' loyalty and Triumph's ready capacity. As we have done with our actuation and engine controls businesses, both of which are on paths to generate EBITDA margins above 27%, interiors can and will be restored to prior levels of profitability and free cash flow. Similarly, our geared solutions business is on track to deliver double-digit margins in fiscal 24 after years of work to retire red development programs and transition them to production. Turning to page six and looking ahead to our fiscal 24 year end, the combined tailwinds of deferred Q3 sales, inherent seasonality, incremental price increases, and selected IP sales puts us on track to have a record Q4 that will translate into year-over-year margin expansion. Our updated guidance adjusts for the sale of product support. We have a clear line of sight across our RemainCo to deliver over 20% EBITDA margins in Q4, compared to 16.7% for fiscal 23. As with the commercial OEMs who posted robust aircraft deliveries in their Q4, we are very busy with product shipments and cash collections in our Q4. As noted, January deliveries were strong as we conduct daily delivery assurance calls to close out our fiscal 24 with year-over-year improvement expected across all financial measures, including over $100 million of free cash flow improvement from prior year. We look forward to providing fiscal 25 guidance after the product support transaction closes with our year-end results during our next earnings call that reflect the combined contribution of our portfolio actions, cost takeout, and lower interest payments. Jim will now take us through our third quarter results and updated outlook for fiscal 24 in more detail. Then I'll return to discuss our end market outlook and growth drivers. Jim?