Triumph Group, Inc.

I will now introduce Mr. Thomas Quigley to begin the call. Please go ahead.

Thank you. Good morning and welcome to our first quarter fiscal 2025 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 will 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 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 achievements to be materially different from any expected future results performance or achievements expressed or implied in the forward-looking statements.

I'll turn it over to you. Thanks, Tom, and welcome to Triumph's first quarter fiscal 2025 call. I'm pleased to report that Triumph's off to a solid start to the year and expect continued improvement as we move through the course of the fiscal 2025 and into seasonally stronger quarters. Turning to page three, I'll highlight key accomplishments from the quarter. We generated year-over-year sales growth of 7%, driven by strong aftermarket demand, offsetting a modest reduction in military OEM production demand. We expanded margins on price increases and favorable sales mix. We retired an additional $120 million of debt, strengthening our balance sheet. We were rewarded with recent credit rating upgrades from both Moody's and S&P. Turning to page four, you can see that aftermarket sales, including spares and repairs from our systems and support segment, is trending up, in support of both commercial and military end markets. Triumph aftermarket sales were up 27% year over year, as we benefit from a rising average fleet age, the need to fly older aircraft longer due to the shortage of new aircraft entering the fleet, and the emergent 787 landing gear overhaul cycle. As we mentioned last quarter, the 787 landing gear overhaul cycle is 12 years, and the oldest member of the fleet are hitting 12 years now. necessitating the removal and overhaul of all landing gear actuation, essentially all of which Triumph supplies. Our typical twin-aisle landing gear actuation overhaul price is between $185,000 and $400,000. The steady rise in spares and repairs on key platforms, including the Boeing 737 and Airbus A320 fleets and the Boeing 787 and Airbus A380 wide-body fleets, benefits our sales mix and financials. Overall military segment revenues were stable to slightly down, supported by the strength of CH-53K sales, offset by V-22 and E-2D OEM declines, though mostly offset by aftermarket sales on these same platforms. Key wins for the quarter include contracts for the F-18 ENF fuel pump overhaul, the T-7A gearbox, and the Kratos XQ58 landing gear, which benefit three of our four Triumph operating companies where we are positioned on key growth platforms. As discussed on our last earnings call, the inflationary impacts on our interiors business continue to be challenging, but largely in line with our expectations and reflective of broader industry trends, particularly a decline in narrow body production rates and supply chain cost increases. We took actions in the quarter to right-size the Interior's business, consistent with a delayed max ramp, while we continue our commercial discussions with Boeing. Triumph remains on track to achieve our overall annual net sales, adjusted EBITDA, and cash flow guidance. When adjusting for a legacy environmental legal contingency we recognized in the quarter, our operating income and EPS guidance also remain unchanged. Jim will provide more color on our outlook later in the call. I'm also pleased with our ability to execute our pivot to systems and IP-based aftermarket. This is the first quarter that Triumph has operated as a pure play systems, IP-based aftermarket and interiors company following the divestiture of our product support business. We have partnered with AAR on a seamless transition and identified areas to win together through AAR's distribution channels. As reported, the product support divestiture served as a catalyst to allow us to significantly and rapidly delever the business, strengthen our balance sheet, and meaningfully reduce our cash interest expense. We remain well positioned to capitalize on strong demand from the aftermarket in the short term and higher OEM build rates over the next 18 months. Triumph is ready for the expected A&D industry super cycle based on our diversification of customers and end markets as we gain share with new products, MRO services, and takeaways. Here's Jim to review our financial results.

Thanks, Dan, and good morning, everyone. Q1 results exceeded our plan on all key financial metrics, and Triumph remains on track to achieve our full-year objectives. Q1 was a good quarter for Triumph, with the strength of our proprietary aftermarket revenue and assistance and support more than offsetting the temporary OEM rate deferrals and supply chain challenges. We continue to lower our debt and improve our credit, as evidenced by the ratings upgrades Triumph received from both S&P and Moody's in the quarter. Our consolidated first quarter results are on page five and show solid growth in revenue, operating income, and margins compared to last year. Revenue of $281 million was up $17 million, or 7%, Adjusted operating income of $17 million was up $3 million, or 23%. Adjusted operating margin of 6% was up 80 basis points from about 5% last year. And $25 million of adjusted EBITDA represents a 9% adjusted EBITDA margin. Aftermarket revenue was 33% of total revenue, up from 27% of revenue Q1 of last year. Our aftermarket revenue, or only a third of our revenue, delivers 73% of our profit in the quarter. Our growing installed base of proprietary products drives our aftermarket revenue and profit growth. We had three non-GAAP adjustments this quarter. A legal contingencies loss of $7.5 million related to a legacy environmental matter. Restructuring costs of $1.6 million as we continue to reduce our fixed costs. And a debt extinguishment loss of $5.4 million from the debt repayment in the quarter. Although not an adjustment, our Q1 legal costs to manage certain legacy loss contingencies were about $1.8 million higher than planned. Our Q1 commercial revenue is on page six. Commercial aftermarket revenue was up $15 million, or 43%, largely on legacy 737 spares and repairs. We also had an IP sale of about $5 million in the quarter, compared to $3 million in the prior year period. Commercial OEM revenue of $119 million was up slightly as 787 revenue increases more than offset revenue declines on Bell 49, Boeing 737, and other commercial platforms. Our Q1 military revenue is on page seven. Military aftermarket revenue of $41 million was up $4 million, or 11% over Q1 last year, which was offset military OEM decline. CH53K continues to be an important military program for us in both OEM and aftermarket revenue. Cash flow is on page 8. For Q1, as expected, we built working capital and had free cash use of $113 million. This included $8 million of capital expenditures, up from $6 million last year. This cash use is driven by seasonally higher working capital, timing of OEM rate ramps, and supply chain shortages, all of which are expected to improve in the second half. The cash use in the quarter also included approximately $2 million of accelerated interest payments for the debt redemption, $1.6 million of cash restructuring costs, and about $5 million cash taxes related to the sale of product support in Q4 last year. On page nine is our net debt and liquidity. During the quarter, we redeemed $120 million of the first lien notes, reducing them from $1.079 billion to $959 million. At the end of the quarter, Net debt was $821 million, up from year end as planned, to support the seasonal working capital build. Liquidity totaled $203 million, including $153 million of cash, and is sufficient for our planned working capital needs. Our combined debt reduction across fiscal 24 and 25 year to date will yield $55 million of annual interest savings, and our remaining notes are not due until 2028. On page 10 is our FY25 revenue, EBITDA, and free cash flow guidance, which is unchanged from last quarter. We continue to expect net sales of approximately $1.2 billion. We continue to expect approximately $182 million of EBITDA for a 15% EBITDA margin. For free cash flow, we continue to expect $10 to $25 million of generation for FY25. Looking ahead to Q2, in addition to normal seasonality, We anticipate lower sales than last year in our geared solutions business, primarily as a result of leak order deferrals and supplier delays on the P22 program. In the second half of the year, Gears expects increases on these programs, as well as the T7A as it transitions from development to production and higher aftermarket sales. Free cash use in the second quarter is expected to be in the range of $70 to $90 million, driven by a $43 million interest payment, seasonality, and working capital timing due to OEM rate ramp. We forecast rapid working capital burn off in the second half of the year, consistent with our full year free cash flow guidance. In summary, first quarter results exceeded our plan and included revenue growth, operating income growth, and operating margin expansion over last year. We remain on track to achieve our full year financial objectives. Now I'll turn the call back to Dan.

Dan? Thanks, Jim. We just returned from the 2024 Farm Bureau International Air Show. And our positive outlook on the long-term demand was reinforced by the level of traffic there and OEM projections. The OEMs expressed optimism about planned increases in aircraft sales and production levels, which are expected to ramp through the end of the calendar 2024 and into 2025. The air show was a very productive event for Triumph. We conducted over 180 meetings and showcased our new proprietary products such as engine actuation, cockpit indicator panels, and new cyber-protected digital avionics, which are at the heart of multiple product development efforts from engine controls to displays. I'll touch on three takeaways from Farnborough. First, it's clear that our customers need triumph. We are problem solvers and have innovative engineers. We heard, keep doing what you're doing, and we'd like you to help us here. We solve our customers' hardest challenges. Second, while delays in commercial transport rate increases are impacting much of the industry, the OEMs are signaling increasing rates later this year and Triumph will benefit from any increases given our conservative assumptions. Boeing and Airbus commercial transport backlog rose 25% since December of 2020. The airlines need these new aircraft. Meanwhile, the aftermarket, both spares and repairs, is growing. and expected to remain strong through the end of the decade, according to leading aircraft lessors. And third, our alignment with our customers has never been better. Our customer collaboration is accelerating, as evidenced by customer-funded initiatives ranging from landing gear systems designs to additively manufactured gearboxes, thermal system solutions, and new actuator and engine control products. Triumph continues to seek out and solve our customers' greatest challenges. Total backlog continues to rise, up 11% year over year to 1.9 billion, even as we push out some narrow body orders. Backlog is stable sequentially as a result of delayed orders, which occurred in first quarter of fiscal 24, but have not yet hit the FY25 order book. Commercial single aisle backlog was flat as Airbus A320 family increases were offset by declines in the 737 and A220. However, Twin Isle backlog is up 42% year-over-year, driven in particular by the 787 and 777 orders spanning OEM and aftermarket. Priam's growth in the commercial segment will accelerate as rate increases at Airbus and Boeing are realized in the near future. Turning to page 12, new wins for the quarter include an F-18 afterburner fuel pump MRO award. We're also supporting the new GE classified military engine test stand with multiple components. Additionally, GE awarded us their T7A F404 gearbox, and Kratos awarded Triumph a landing gear design and build program for the Kratos XQ58 Valkyrie, a collaborative combat aircraft variant. Turning to page 13, I want to acknowledge our now second largest customer, GE Aerospace, and the breadth of our growing engagement with them. Over the last four years, our GE revenues have grown at a 23% CAGR, nearly doubling. We have a strong portfolio of legacy products for GE, including gearboxes, Rotocraft fuel controls, fighter fuel pumps, and heat exchangers. But more importantly, we have a growing portfolio of new applications, which have led to the development of new products and entirely new product lines. For example, On GE's new military engines, both adaptive cycle and a classified derivative engine, Triumph has 10x the content on these new engines versus prior GE military engines, which will be tailwinds as these engines transition to production. GE recognized Triumph as both a valued partner and a problem solver. We are positioned to grow alongside them in the years to come. On the emerging electric vehicle market, We've had several wins in the quarter, including a thermal package on the Dorsha aircraft D38 Eco and a funded preliminary design effort for a Tier 1 electric regional jet gearbox. We continue to track commercial transport segment performance, including aircraft orders and backlog. While new aircraft orders year-to-date are lagging prior year, total aircraft order backlog stands at more than 15,000, up 25% from 2020, and represents 12 years of production backlog at current rates, underpinning the rising pressure for further production rate increases. I look forward to working with both the new Boeing Commercial CEO, Stephanie Pope, and Boeing CEO, Kelly Wartburg, who I know from my past industry roles. Triumph is fully supporting Boeing's quality and safety management system initiatives and is closely monitoring their supplier portal for aircraft rate changes. On the development front, we were very encouraged that Boeing's 777X program is moving forward to the formal stage of flight testing with the FAA. Triumph has over 700,000 content on this new advanced aircraft, which I saw in number during my recent visit to Boeing's final assembly plant. With a backlog of over 500 aircraft prior to certification, this is expected to be a very successful program. Before I wrap up, I want to update you on a post-quarter closed cyber event. On July 27th, we identified a cybersecurity incident involving unauthorized access to certain of our IT systems. The company immediately took steps designed to contain the incident and activated our incident response plan to support continued operations. Consistent with the responses of other firms, we also notified appropriate law enforcement authorities and continue to work closely with cybersecurity experts and legal counsel to protect the company's interest and our customers. We have substantially restored the effective systems and resumed normal operations. We believe that the security incident has not had and is not reasonably likely to have a material impact on the company's financial results. In summary, we're off to a solid start for the year. and Q1 puts us on track to achieve our fiscal 2025 objectives. The path to our year-end guidance is expected to be nonlinear, but the improvement in customer demand in the second half of the year gives us confidence in our outlook. After market sales continue to power the company through the near-term OEM headwinds, we expect to expand margins and improve cash quarter-over-quarter as we further realize benefits from our improved business profile and initiatives. The encouraging long-term outlook for our industry, our unique and focused markets position, and commitment to performance has us well positioned for continued success. My team and I are closely aligned with our customers as we work through the near-term issues facing full recovery of OEM demand, and we're excited about our new products on future aircraft and engines that will enhance our long-term value creation. Triumph will continue to hustle while we wait for the follow-through on customer demand while strengthening our balance sheet, streamlining our business, and investing in our product portfolio to enhance our shareholder value. We're happy to answer any questions that you've got at this time.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Peter Arment of Baird. Please go ahead.

Good morning, Dan. Good morning, Dan, Jim, Tom. Um, again, um, can you, uh, you know, maybe walk us through, uh, you know, you've got, you're going to have like a heavy usage of free cashflow in the first half, but you're expected obviously turn positive. You know, what are the kind of the programs that you can kind of point to? Is it, is it the seven, eight, seven work? Obviously the aftermarket's power in the company that kind of gives you that positive swing on the, in the back half of the year. And what, what rate do you expect to kind of be at on the seven, three, seven max? I know that's critical for your interiors profitability.

Yeah. First of all, when I, when I look at the business, I look at it through this, this lens of the operating companies and we have strong performance out of our actuation business. Uh, it's, it's hitting its marks as well as engine controls. And so, you know, they're, they're performing independent of the max, you know, we're seeing strong sales growth out of that as well. Our geared solutions business is down slightly. And we know why that is. It's predominantly the LEAP program, as well as the wrap-up on the Bell 429. They have new programs that are transitioning into production in the second half of the year that will benefit them, like the T7A. Interiors is definitely down. You know, they're producing it on the order of 12 to 14 a month now on the max because we deliver a lot of inventory. It's physically a large product to store. As that rate comes back at the end of our fiscal year, what I predict would be Q4, we're going to see that business have an upswing in volume. And, you know, overall, it's really the mix of MRO, military, and commercial all coming back strong in the second half of the year that contributes to that. Jim?

Yeah, it's a diversified working capital challenge, and it's across multiple programs, not just the big Boeing programs, but LEAP, gearboxes, and B22, where we have some supply chain challenges, are all contributing to the temporary working capital surge. But we see a line of sight for all those to liquidate in the second half of the year.

Okay. And then just as a clarification, Jim, you mentioned your, I think, an interest cost payment in the second quarter. It seemed larger than either your And what the run rate is, or could you maybe just walk us through a little bit because you did pay down the debt and, you know, kind of the interest rate in the quarter interest cost was, you know, kind of trending below your guidance for the year. So maybe you could just update us there.

Sure, Peter. It's a semi-annual interest payment, September 15th. It's about $43 million. So, and that's just on the remaining bonds that are outstanding. There's $959 million that are out there. I'm sorry, could you re-ask the second part of your question?

yeah just say so that in that guidance of 95 to 90 million on cash interest still holds with that number yeah absolutely that's correct thanks thanks guys thank you peter the next question comes from david strauss of bark please go ahead i think that's barclays yes correct thanks good morning

Paul, question on interiors. What kind of volume do you need on the MAX to get to, you know, positive EU staff in interiors, and when would you expect to get there this year?

Sure, thanks. Interiors is, let me first break down that interiors is three different businesses. Insulation is the largest, followed by composites, and then cabin components. Installation, we assumed a build rate this year of 160 shipsets, so you can do the math. It's 1213, and the portals is at that same kind of rate. Composites, we're producing at a higher volume, closer to 30 a month, because composite is the smaller products that can be packaged and nested, and we didn't really build ahead on composites. plus we're backstopping a number of suppliers that aren't performing on that. So some of that work is dual sourced. And then cabin components follows composites. So the real challenge is getting installation rates back up. And we've been profitable in this business at rates that are on the order of 30 a month. So to go from call it 13 a month to 30, We'll cross that threshold, and if Boeing can get to 40 as they've advertised next year, it will be solidly profitable. But we're not just relying on the rates. We've taken advantage of this bathtub in production to take out significant costs. The operations are performing well independent of the rate. They're 99% on-time delivery and similar quality. We're moving some work between the two plants in Mexicali, Zacatecas, We've hosted Boeing on-site teams who are very impressed with what we're doing. We're picking up 787 work from competitors. So we're using the time to improve the performance of the business, and it looks like the peso is turning in our direction. It was really impactful to us last year. We still have work to do on supplier input costs. That's been a big driver for that business, but we're going to deal with that head on.

Okay. I guess, do you assume positive EBITDA for the, you know, within the $182 million EBITDA guidance for the year? Are you assuming that interiors is positive for the full year?

It's a modest contributor at this point.

And still, again, about 10% of sales. So, it's not a big swinger on Triumph's full results.

Okay. And then... Jim, I guess another follow-up on the prior question. On interest expense, just the, you know, the income statement amount, I think the quarter was 19. You've now reduced, you know, your debt balance. How do we get the 95 million for the full year?

Yes, there's a little bit of favorable FX that runs through that line as well. But the interest expense itself on a cash basis is just the 959 million at 9%. Okay. Thanks very much. Thank you.

The next question comes from Michael Ciamoli from Chewist Securities. Please go ahead.

Hey, morning, guys. Thanks for taking the questions. Dan, I think you said you guys exceeded the plan on all metrics. I mean, was that a $7 million loss in interiors part of the plan? I mean, it seemed like that would have been worse. And then what's I mean, the confidence level, I guess, in the second half here, I mean, is this solely dependent on the max ramping and this kind of chatter or reports the past 24 to 48 hours of them redesigning that door plug? Is there any risk to ramping up that production that you guys see and kind of just trying to get a sense of the confidence level in this back half of the year here?

Yeah, first of all, thanks, Michael. When I say we exceeded a plan, it was on a consolidated basis, which speaks to the strength of our systems and support business, particularly actuation had a very good Q1, and they offset the softness in interiors, which was below plan, to your point. As far as the max rates, yeah, we're counting on rates to come back at the back end of the year. If they materially don't, then we'll come back and we'll update investors. But we've done such amount of work on diversification. It's still that single program is only about 12% of our revenue. So should the rate remain flat for longer than we'd like, then the impact is not going to be huge. As far as the door plug, listen, Boeing is doing the right thing on this. I've been tracking this as an insider on all their quality calls. You know, certainly it was a disappointment. They came clean on the handoff issues they had related to the fastener installation. You know, I was one of the first people to ask, you know, hey, why can't this door plug be designed such that it's retained under flight pressures and doesn't require fasteners? They're only there as a secondary backup. And when I told that to senior Boeing leaders, they said that's already done. in our pipeline to do that. And this was two months ago. So it's something they've been, it's not something, it may have just come up publicly the last day or two, but it's something that Boeing is already ahead of the game on. So I'm confident they'll get it fixed. You know, it's a disappointment. It did impact a lot of us in the supply chain, but it will get fixed. And based on what I'm seeing within Boeing and all the work that they've done, I attended their supplier conference in Q1. They're fully committed to improving their performance and not stepping up the rate until the metrics justify doing so.

Got it. Perfect. And then just, Dan, I think you called out that XQ-58 landing gear award. Is that a sizable or material win for you guys? Any color on that? I know there's a lot of movement with these collaborative combat kind of aircraft and plans.

I don't think it's going to be a huge contract. The thing about our landing gear business is we go in and help primes, OEMs, that don't have any expertise, but they may attempt to do the landing gear on their own, and then they look at crash survivalness, the ability to operate in off-nominal conditions, heavy landings, crosswinds. And suddenly, it's not so easy. And so we have a team in Seattle that designs these full test rigs. I was just up there looking at the landing gear that they've designed for the beta eVTOL aircraft, and they were running a deployment test on that. It's a very slick design, very low cost, low weight, given that's important on eVTOL. On the XQ-58, we met with Eric and his team at the air show, very good meeting. They know what they're good at. We know what we're good at, and they're glad to have us as a partner. You're going to see us do that on other aircraft up to a certain weight class. The large landing gear, we're not really in that space, but these small to medium class aircraft, we're becoming a strong leader in.

Got it. Perfect. Thanks, guys. I'll jump back in the queue.

Yeah.

Thanks, Michael.

The next question comes from Miles Walton of Wolf Research. Please go ahead.

Thanks. Good morning. Jim, I think 2Q was looked at as a neutral from a free cash flow perspective and now 70 to 90 and obviously was burning hotter in the first quarter. Can you point to specifically why that deterioration and I guess why the confidence that you'll still recover to the same point by the end of the year?

Sure.

Yeah, I know that the consensus out there was around zero. We had a little bit of cash usage in our AOP. And unfortunately, it's grown because of the rates. The timing of the rate ramp, essentially, is one driver. Supply chain challenges on certain military programs are another driver. The leap schedule for deliveries is another driver. Those are three of the big ones. We're continuing to support our customers to make sure we have the inventory available. As we've said before, we have longer lead times than the frozen window for customer order changes. So that inventory will get used. We see a lot of that liquidating in the second half of the year. It's a diversified mix of programs that are impacted, which means that we have high confidence that a lot of those will liquidate and a few of them don't. It's not going to be deadly to the overall forecast. So it's really working capital driven. It's timing, but it's the right thing to do to support our customers. And remember, 73% of our profit in Q1 was aftermarket. So it's really about the aftermarket. Even though it's a third of sales, That's going to continue to drive the cash flow and profitability. It has near-term opportunities we're going to seize on. And we're continuing to build the longer-term OEM deliveries that feed things like the 787 landing year overhaul. It may be 12 years later, but all these programs are going to pay off in the aftermarket in addition to the OEM contribution, which is less in the aftermarket.

Okay.

Yeah, I think consensus is neutral because I thought on the last call you pointed to neutral in the second quarter, followed by generation in the third and fourth, but maybe

if there's something that was lost in the rain, in the range of, so our planning was just a modest use in Q2 originally.

It really is. It really is. It really is just a timing issue. It's not as if we bought the wrong parts and misjudged the market. Uh, you know, we typically order these long leave parts six to 12 months in advance of need. So if Boeing changes their demand, which they have the right to do, inside lead time, then you can get some overshoot on working capital. And that's what we're seeing in Q2. Okay.

And Dan, you've gone through, Jim, you've gone through this long simplification process through divestitures, and we're still struggling to generate material free cash flow. Is it questioning for you whether you have to do more from a portfolio perspective? Or is there a point where you think about strategic alternatives to the whole, for the benefit of the company or shareholders?

Fair question, Miles. It's something every quarter we meet with the board and we look at all options that are available to the company. So it's not a new topic. In fact, I have a chart that I used with the board that goes back to when we first started looking at each opco as well as the overall company. So we're always open to different outcomes that would enhance shareholder value. But we do feel that what we've consolidated the company down through consolidations and divestitures is the right asset base. Certainly interiors is one we're going to continue to look at, but we need to restore the rates on that. We've got some pricing negotiations that are still pending with our customers, but I like the business that we have, actuation, engine controls, gearboxes, and interiors under the right conditions of volume. And, you know, we'd like to get our leverage down. We reduced it from 10 times to, I think, 4.9 with the TPS divestiture this year. We're on path to reduce it 3.5. We have a line of sight over our planning horizon to get it down to 2. And then we can start thinking differently. But right now, you know, we're comfortable with our balance sheet structure, and we don't see a need to do any major divestitures to maintain our leverage and cash flow. Okay, all right, thank you. Seth.

The next question comes from Seth Seifman of JP Morgan. Please go ahead.

Good morning, this is Rocco on for Seth. Have you begun to see any destocking of Triumph work at Boeing, and how is the Airbus rate ramp delay impacting Triumph?

I want to play that back. Have we started to see destocking from Boeing? Yes. So we did lower our backlog consistent with the push-out of max orders in the quarter, even though backlog was still up, I think, 8% in aggregate despite that. Boeing is, you know, we looked at their delivery, and they're getting close to shipping their finished goods aircraft. That's coming down in a pretty steady fashion. So this will pivot from, you know, I call it depressed build rates to higher build rates, you know, over the next year. But we did take action on the backlog and expect that to reverse. Did that address your question or did I miss it?

Yes, then just the Airbus rate ramp delay, is that impacting Triumph?

So modestly, you know, it's such a robust rate, you know, already. You know, we would have liked to seen it head north. You know, in our fiscal 25, you know, we're building like on the A320X family about, you know, 50 a month. And we were headed 60 next year and then into the 70s thereafter. And so it's really just a question of the profile to get there. So it's one of our top, you know, three or four programs. It's a steady enough build rate that we're meeting all of our, I'll call it, you know, economic production quantity thresholds. And we're able to support them in the aftermarket as well, as Jim mentioned. So, you know, yes, it's impacting them. I know they've talked about it because they've set a very high bar for their output because of the huge backlog of orders. But from a supplier point of view, it's not impacting us.

Great. Thank you. Ben, are you concerned by the grounding of the V-22 following the accident a few months ago, and should that weigh on defense results for the year?

The V-22 crash that happened was unrelated to the hardware that Triumph supplies. It was an engine-related defect. It's been publicly reported, not the pylon conversion actuators that we supply. However, when they limit the use of the aircraft or pause its use, It does have an impact on OEM deliveries and to some extent aftermarket. And that was part of the softness that Jim reported in our military business. In the longer term, the V-22 is going to be in operation for decades. And the Valor, the V-280 that's coming up behind it and other platforms are a long way from fielding. So we expect the demand for those actuators to continue and And we're confident in the quality of the hardware we're shipping.

Great. Thank you.

Good.

The next question comes from Ron Epstein of Bank of America. Please go ahead. Hey, guys. Can you hear me okay? Yeah. Hey, Ron.

Hey. Good morning. What are you guys factoring into your outlook for the possibility of the strike? I mean, it seems like a pretty high probability. The question is just how long is the strike? How are you thinking about that, and how is that kind of factored into your outlook?

So when we adopted our bill rate for the year, we call it past three of our annual operating plan, we assumed demand on the order of 30 a month for most of our factories, as I mentioned. So we're pretty derated already. And that's an average over the course of the year, you know, 360 shipsets. If they have a dip that goes down associated with any strike, and I don't have any intel that says they'll have one, we'll likely just build to inventory and not adjust our build rates. You know, Boeing has been a responsible prime and allowing the supply chain to continue to build at economic rates where they can. I mean, there's a limit, obviously. But, you know, I'm sure you've asked Brian West, you know, am I investing in protecting suppliers? And he'd say, yeah, I've got billions of dollars of inventory to prove it. So I expect them to continue that behavior as opposed to, hey, everybody stop production, we're on the strike. Now, if it were to be protracted, yeah, you know, the rates might be adjusted, but, you know, I'll know more about that in the coming, you know, we all will in the coming, you know, days and weeks. We have contingency plans operationally that if, should it happen, and they send signals in the portal to reduce the rate. We know how to de-staff. We know how to furlough people, reduce overtime. and put notice out to our suppliers so the mechanisms are in place, but I don't think we're going to have any to do it.

Got it, got it. And can you speak to a little bit, you mentioned it, it's on one of your slides, the electric aircraft gearbox development, you know, what are you doing there and who's it for and so on and so forth?

yeah well in preparing for our remarks today uh i wanted to talk about the name of the prime because it's the prime you would know uh they didn't want us to mention it but let me let me just describe um you know the the application so you know today a lot of regional jets are turboprops and they have gearboxes that connect uh you know let's say a pratt windy you know pt6 engine to the propeller And these gearboxes don't go away when you adopt electrification. In fact, they become the critical link between the electric motors, which spin at a very high rate, and the prop, which spins at a lower rate. So the gearboxes step down that rotational speed, whether it's prop or it's a helicopter rotor. Now, the design of it's different because you're not getting a single shaft input from a turbine motor, you're getting input from maybe four parallel electric motors. And what they're trying to do, the prime's trying to do, is to build a clean sheet aircraft that takes advantage of this new architecture while still maintaining, I'll call it, an airframe that looks similar but underneath the skin. It's got a place for the batteries to reside. It's got Our gearboxes, it's got these new electric motors. It's got new engine controls because you don't need to worry about fuel pressure. It's got more electric actuation, so you don't need a hydraulic system. Since you don't have a traditional engine, you don't have an AMAD that's providing an accessory engine gearbox that drives things like hydraulic pumps. So all those subsystem architectures have changed. And they have funded us to lead the design of that gearbox. So look for Triumph to continue to support those kind of applications, even as aircraft electrification advances.

And then maybe one more on the landing gear system for Kratos. How much new design landing gear has Triumph actually done?

Well, by platform, quite a bit. You know, I mentioned the Beta eVTOL. We also did the Cirrus business jet aircraft. We did the Dream Chaser nosewheel gearing, which looks more like, you know, a space shuttle. It's got heat shields on it. And then we've done now the XQ-58 aircraft. And we support some of the small military aircraft. We're involved in some of the classified work that I can't discuss. So I'd say it's a very broad set of applications, not particularly on large programs in terms of production volume, but a very good mix of platforms. And that's our niche. There are other people that have the high volume You know, large aircraft, but they're also, they've been negotiated down on price over multiple rounds, whereas we tend to do pretty well on these shorter run applications.

Got it. All right. Thank you.

Our next question comes from Kai Von Rumar from TD Cohen. Please go ahead.

Yes. Thanks so much, and good quarter. Thanks. Two-part question on Boeing rates. 787, where are you now and where do you expect to go and when? And secondly, when does the max go up? Because if you do 160 shipsets, essentially that looks like you're running 12 to 14 for the entire year.

Okay, I'll start with 787. So we adopted an assumption that is between 53 and 63 shipsets this year. So if you divide that by 12, you get the 4.5 to 5 a month. It depends on the factory. I don't mean to make this complicated, Kai. It really is a function of buffer stock inventory, what we ship. The portal demands that are in the system from Boeing for us are higher. they are between five and eight per month with our clemens site that builds actuation landing gear actuation components at that higher rate so it's a little bit of a head scratcher you know in terms of a wire some factories you know lower than than others but um we're pleased that the 787 actual demand is coming out higher than what we adopted for the basis of our AOP. And that's part of why Jim was able to reference higher commercial OEM volume in the quarters because 787 is pretty strong. Now, looking ahead, what we look to happen on the 787 is that in our fiscal 26, we forecast that to get up to maybe eight a month. universally across all the factories, not just Clemens, but Yakima and Interiors as well, because Interiors is a big 787 provider. They're building, Interiors is building at about four and a half per month today. And what we're seeing in the portal for Interiors is about six a month. So it's already been complicated in my response, but it does vary by plant. You asked, the first question was about 737?

Right, because the 160 basically looks like you run the whole year at about 12 to 14. So when does that go up and what does it go to?

Joe, I really have to defer to Boeing in terms of the shape of their ramp. You know, we have our own internal forecast by month. I'm looking at it right here. We can see step-ups happening in September and then November and sort of leveling out at 38 in our Q4, which is out in January to March. So it's a pretty... We've modeled a two- to three-step increase between now and then. Boeing does like to keep their steps constant for a period of time. They don't want to step monthly. They like to step in six-month increments, but I'll defer to them on the actual shape of the ramp.

Terrific. And just one for you, Jim. Pension contribution, I didn't see any in the first quarter. I believe, you know, in your initial guide, you had something like $23 million. How much is that contribution expected to be, and when will it hit?

So spread out throughout the year. There was none in the first quarter. There's four payments throughout the year. So they'll be spread over the balance of the year. I don't have the exact timing, but I think you can look and spread pretty evenly over the balance of the year.

Excellent. Thanks so much. You bet.

The next question comes from Sheila Kayaglu of Jefferies. Please go ahead.

Good morning, Dan and Jim. Thanks so much. So first question for you, maybe on systems and support, if we exclude that IT sale, it looks like margins were 14.5 about flat year on year, but we're modeling about 500 basis points of acceleration as we exit the year. So just gradually ramping. How do we get comfortable with the systems and support margin outlook?

Yeah, the IP sale of $5 million this quarter compares to $3 million that was in the prior year quarter. Right. So it's just a slightly more than we've had previously. I think the margins are still up even if you took those out, but the fact is those are normal course for us now. We're continuing to improve our older programs that others have seen more value in than we do in running them out, and that helps provide some cash. But assistance support outperformed its plan in the first quarter. It continues to outperform. The aftermarket's very strong there. So can you repeat the second part of your question on were you looking where it was going for the full year?

Yeah, I was more talking about the absolute margin of like 14.5. As we think about exiting the year, we get to about 19%. So how do margins improve so much as we exit the year?

Yeah, so it's volume driven. Remember that this year we have a couple things going on. We've got price coming in. So we've got $75 million of price. and we've got volume increasing so in systems and support as I look at my volume over the course of the year despite the the second quarter challenges for geared that I spoke about there's a significant increases in q3 and q4 so it's volume driven there's some price remember we took 40 million of annualized cost out as well across the company so we're going to see benefits from that too so three of those are what's contributing towards the REIT that you said, which is very much in the reasonable range for the full year.

Sheila, you remember that old saying about, you know, forecasting is difficult, particularly about the future. You know, last year, we slowed down our rate on GE LEAP in the second quarter, and then they called us and said, forget that, you know, throttles forward, We need, you know, more shipment out to you. We almost recovered to the full original AOP by the end of the year. And we may see that this year, depending on how things progress. But they did notify us of fewer demand for the gearboxes that we produce for them. And, you know, we adjust our outlook accordingly. I would say stay tuned through Q2, Q3. And we may, in fact, see the pendulum swing back to producing at higher rates for the narrow body. We're not counting on that. That's not in our forecast, but we'll be prepared for it. And we have the inventory to do it.

I think if you look to prior years, look at the trends on the margins prior year, it's very consistent that we'll be achieving what we're forecasting for this year.

And maybe on free cash flow, what's sort of the early rate assumption you have baked in to get to cash positive in the second half in Q3 and Q4?

And so, as we said, we're 79 to use in Q3. We'll be positive in Q, I'm sorry, Q2, we're 79 to use. We'll be positive in Q3, and then we'll be very positive in Q4. Again, similar to prior seasonality that we've seen in prior years.

okay um and last question on uh the aftermarket demand mro x that ip sale mro was up 37 so you know double that appears so what's kind of driving that and how do we think about full year aftermarket growth so aftermarket is a it's a reflection of legacy fleets um you know operating longer because of you know demand i mean you you fly a lot too tsa just hit their

highest post-COVID throughput, 3 million a couple of weeks ago. They need these jets. I mean, I've been flying on wide bodies lately for domestic routes that I never expected to, but I really like it. And we are seeing it strong on military platforms as well in support of readiness. We had some FMS spares come through in the quarter. We're seeing Army... engine control replenishment orders come through. Actuation, as I mentioned, had strong aftermarket. So it's not been a single opco or site that saw the aftermarket demand. It's been pretty broad-based. And I was also asked, did we see this running out in a year or two's time? Now I'm starting to think it's going to be running through the decade. I don't think we're going to see between the military conflicts that are happening and the delay in ramp versus the backlog of aircraft orders, I don't see aftermarket trending down now for several years. So I think it'll be a good tailwind for us. And I mentioned AAR, but we also use VSC and Triman as distribution partners, and they're doing a very good job finding spares and repair opportunities for us, and we're not doing this by ourselves.

Great, thank you.

Thank you. The next question comes from Noah Popanek of Goldman Sachs. Please go ahead.

Hey, good morning, everyone. Good morning. Jim, you just alluded to the free cash flow seasonality being similar to the past, but With the 1Q actual and what you just guided to for 2Q, the use in the first half would be about twice the size of the last two years when you had negative full year. And the positive in the back half would need to be much larger to get to the full year. So directionally, it looks similar, but the order of magnitude is much different. And I guess it sounds like you're pointing to working capital and the volatility from Boeing, but... you've got a revenue plan for the year of kind of flat organically you're up a little in the quarter you're saying Aerospace OE revenue is up a little in the quarter defense is kind of flat aftermarket's really good um you've talked about and others have Boeing kind of pulling at the higher rates they plan to get to from the supply chain not really changing that so I guess With all of that, it's kind of like everything I know except for your final answer on cash flow would make me think that your cash flow did not have a massive use of working capital and burn in the first half in a much different profile than the past two years, yet it does. What am I missing? What's the missing piece there? I mean, did you just ship a lot more on the front end than others in the industry? Or is there something different contractually between you versus others in the industry? I'm struggling to understand that much different shape of cash flow compared to revenue.

Yeah, so there's no simple answer because there are a lot of programs we're talking about. We did use more cash this year than last year. I think what you saw was a lot of customers giving us early payments and advances in Q4 this year, more so than they did a year ago. So we had some of that reverse itself in Q1. Q2 is really a story of increasing working capital because we can't ship everything because the ramps are delayed because we have some supply chain challenges. And that's going to ship out in the second half of the year. So there is higher cash in the second half of the year in the continuing business than last year. Remember, you've got to look at last year X, the product support business. And Q4, conservatively, is when most of the working capital reduction is, but there's a portion in Q3 as well. So you're right that it's a little more exaggerated than it was in prior years, but it's the same profile, magnitude just a little higher in the second half.

Okay. Can you quantify what you're assuming now for working capital use in the first half and what you're assuming for positive working capital in the second half, roughly?

I don't have the working capital line itself to talk about. I just have the total cash flow. But as we used 113 million in Q1, we're saying we could use in the range of 70 to 90 in Q2. You're going to see significant generation in Q3, but the majority of the generation in the second half will be in Q4.

Okay. The six points of price that you've talked about, how did that look in the first quarter?

We benefited from it. again i don't have the exact amount of price to hit q1 remember it's not just price it's it's cost out as well but 75 million of price planned in the year 65 is was already under contract so you can assume roughly a quarter of that 65 and but then i would derate it for the sales as a percentage of the full year yeah we continue to see strength in pricing

Because of the supply chain constraints and people still investing in Sources to make sure they can support a ramp when it comes or military as I look at our last ten price ups More than half our military related So we're getting quite a bit of ice on that side as well that that helps us and remember we negotiated a lot of these things back in 22 and they're just now dropping in here because we typically negotiate them outside lead time and most of these are our ip there's a few that are we're sole source build print but it's so hard to switch even example on the apache we do gearboxes and we replaced a bank near bankrupt supplier on that and And it was a very painful transition. We did it. We're performing reliably now. And we've gotten price on it since because they don't want to go through that again. So I think we'll see price continue to be a tailwind. We're not done. These LTAs keep renewing on an annual basis. And this is also part of why we're doing the new product development, so that we can claim more value. And we may ultimately have better margins at a lower delivered cost because we've redesigned a product. In a way, it's got fewer parts and lighter weight, but it's got higher performance for our customer. I'll give you an example. We're partnering with several primes on the vapor cycle cooling, which has been a big part of our renovation of the West Hartford plant. And customers are very excited about us supporting their replacement of legacy cooling systems on the aircraft and we'll have strong margins on that work so it's a it's an investment we made in years past that will pay off in the future okay thanks thanks for the detail hey yeah thanks noah the conference is now concluded thank you for attending today's presentation you may now disconnect