Triumph (TGI) - 2024 Q3 - Quarterly Report

Part I. Financial Information This part covers the unaudited financial statements, management's discussion, market risk, and controls for the reporting period Item 1. Financial Statements (Unaudited) The unaudited financial statements for the period ended December 31, 2023, reflect a net loss, improved stockholders' deficit, and negative but improving operating cash flow Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit as of December 31, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $162,899 | $227,403 | | Total current assets | $929,207 | $933,512 | | Assets held for sale - current | $180,642 | $140,096 | | Total assets | $1,676,582 | $1,714,844 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $349,382 | $396,924 | | Long-term debt, less current portion | $1,627,810 | $1,688,620 | | Total liabilities | $2,346,862 | $2,512,240 | | Total stockholders' deficit | $(670,280) | $(797,396) | - Assets held for sale increased significantly to $180.6 million as of December 31, 2023, reflecting the classification of the Product Support business as a disposal group[9][56] - Total stockholders' deficit improved from $(797.4) million at March 31, 2023, to $(670.3) million at December 31, 2023, partly due to an increase in capital in excess of par value from share issuances and warrant exercises[9][16] Condensed Consolidated Statements of Operations This section details the company's financial performance, including net sales, operating income, and net loss for the three and nine-month periods Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 FY2024 (ended Dec 31, 2023) | Q3 FY2023 (ended Dec 31, 2022) | 9M FY2024 (ended Dec 31, 2023) | 9M FY2023 (ended Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $284,955 | $261,662 | $833,456 | $805,104 | | Operating income | $19,711 | $23,633 | $41,642 | $152,692 | | (Loss) income from continuing operations | $(11,911) | $5,512 | $(39,930) | $96,582 | | Net (loss) income | $(15,902) | $10,952 | $(35,361) | $107,136 | | (Loss) earnings per share—diluted | $(0.20) | $0.08 | $(0.49) | $1.53 | - The significant decrease in operating income for the nine-month period is primarily due to a $103.2 million gain on the sale of assets and businesses recognized in the prior-year period, compared to a $12.2 million loss in the current period[11] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended December 31 Cash Flow Summary - Nine Months Ended Dec 31 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(68,275) | $(112,291) | | Net cash used in investing activities | $(24,756) | $(18,434) | | Net cash provided by (used in) financing activities | $28,361 | $(5,299) | | Net change in cash and cash equivalents | $(64,504) | $(141,449) | - Cash used in operating activities improved by $44.0 million year-over-year, from $(112.3) million to $(68.3) million[20][217] - Financing activities provided $28.4 million in cash, primarily driven by $80.0 million in net proceeds from the issuance of common stock related to warrant exercises, partially offset by $50.6 million in debt retirement[20][221] Notes to Condensed Consolidated Financial Statements These notes provide critical details on accounting policies, the Product Support business divestiture, revenue recognition, debt structure, segment performance, and ongoing legal contingencies - The company has two reportable segments: Systems & Support and Interiors (formerly Aerospace Structures)[23] - In December 2023, Triumph entered a definitive agreement to sell its Product Support business to AAR Corp. for $725 million, with results now classified as discontinued operations and assets/liabilities held for sale[24][54][56] - As of December 31, 2023, the company had $1.6 billion in unsatisfied performance obligations (backlog), with approximately $979.5 million expected to be recognized as revenue within one year[74][75] - The company is involved in litigation seeking approximately $130 million in damages for alleged breach of contract and fraudulent inducement related to a former Stuart facility, which the company disputes[135][137] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Product Support business divestiture for $725 million to reduce debt, Q3 FY2024 sales growth driven by Commercial OEM, a loss from continuing operations, and a $1.87 billion backlog Overview This overview highlights the definitive agreement to sell the Product Support MRO operations and key financial performance metrics for Q3 FY2024 - The company entered into a definitive agreement in December 2023 to sell its Product Support MRO operations to AAR Corp. These operations are now classified as discontinued[142] Q3 FY2024 Financial Highlights vs. Q3 FY2023 | Metric | Q3 FY2024 | Q3 FY2023 | | :--- | :--- | :--- | | Net Sales | $285.0M | $261.7M | | Operating Income | $19.7M | $23.6M | | Loss from Continuing Operations | $(11.9)M | $5.5M (Income) | | Diluted EPS from Continuing Ops | $(0.15) | $0.09 | - Company backlog as of December 31, 2023, was $1.87 billion[150] Results of Operations This section analyzes net sales by end market, gross profit margin changes, and the factors influencing operating income for the reporting periods Net Sales by End Market - Q3 FY2024 vs Q3 FY2023 (in thousands) | End Market | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Commercial OEM | $142,256 | $119,967 | | Military OEM | $61,149 | $61,705 | | Commercial Aftermarket | $35,089 | $30,922 | | Military Aftermarket | $38,328 | $39,093 | | Total Net Sales | $284,955 | $261,662 | - For Q3 FY2024, organic Commercial OEM sales increased by $30.7 million (27.5%), primarily from Boeing 737 and 787 programs, while Commercial Aftermarket sales grew by $4.2 million (13.5%)[165][168] - Consolidated gross profit margin for Q3 FY2024 decreased to 24.6% from 27.4% in the prior year, due to inflation, unfavorable foreign exchange rates, and changes in sales mix[172] - For the nine months ended Dec 31, 2023, total operating income fell to $41.6 million from $152.7 million year-over-year, largely because the prior period included a significant gain on the sale of the Stuart manufacturing operations[198][201] Business Segment Performance This section details the net sales and operating income performance of the Systems & Support and Interiors segments for Q3 FY2024 Segment Performance - Q3 FY2024 vs Q3 FY2023 (in thousands) | Segment | Net Sales (Q3'24) | Net Sales (Q3'23) | % Change | Operating Income (Q3'24) | Operating Income (Q3'23) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Systems & Support | $241,109 | $218,196 | 10.5% | $33,846 | $31,586 | 7.2% | | Interiors | $44,080 | $43,606 | 1.1% | $(2,124) | $5,022 | (142.3)% | - Systems & Support Q3 sales grew 10.5% organically, driven by commercial OEM and aftermarket recovery, with operating income increasing 7.2% to $33.8 million[183][184] - Interiors Q3 organic sales increased 25.6%, but the segment reported an operating loss of $2.1 million, a significant decrease from a $5.0 million income in the prior year, due to environmental remediation costs, inflation, and unfavorable foreign exchange effects[188][189] Liquidity and Capital Resources This section discusses the company's plans to use divestiture proceeds for debt reduction, cash flow from operating activities, and available liquidity - The company plans to use proceeds from the Product Support sale to redeem debt, including up to all outstanding 2025 Notes and approximately $120 million of 2028 First Lien Notes, projected to reduce annual interest expense by about $56 million in fiscal 2025[57][216] - Net cash outflow from operating activities was $68.3 million for the nine months ended Dec 31, 2023, an improvement from a $112.3 million outflow in the prior-year period[217] - As of December 31, 2023, the company had $162.9 million of cash on hand and $55.4 million available under its Securitization Facility[221] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states there has been no material change in its exposure to market risks since its Annual Report on Form 10-K for the fiscal year ended March 31, 2023 - There has been no material change in the company's market risk information during the period covered by this report[238] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2023. No material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023[240] - There were no changes during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[241] Part II. Other Information This part covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report Item 1. Legal Proceedings A complaint was filed against the company on December 12, 2023, by the buyer of the Stuart facility. The buyer alleges breach of contract and fraudulent inducement, seeking damages of approximately $130 million. The company disputes the claims and intends to defend itself vigorously - On December 12, 2023, the buyer of the Stuart facility filed a complaint against Triumph Aerostructures, LLC (TAS) and the company, alleging breach of contract and fraudulent inducement[242] - The complaint seeks damages of approximately $130 million related to alleged undisclosed paint, supplier, and production issues, which the company disputes[242][243] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2023 - No material changes in risk factors were reported compared to the Annual Report on Form 10-K for the fiscal year ended March 31, 2023[244] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This item is not applicable for the reporting period - Not applicable[245] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Securities and Asset Purchase Agreement for the sale of the Product Support business, amendments to credit facilities, and various officer certifications - Key exhibits filed include the Securities and Asset Purchase Agreement related to the sale of the Product Support business to AAR CORP, and amendments to the company's Receivables Purchase Agreement[249]