Triumph (US:TGI)2021-11-09 18:09Financial Data and Key Metrics Changes - Triumph Group reported a 20% increase in MRO services, indicating strong recovery in the commercial market [10] - Adjusted operating income for Q2 was $28 million, with an adjusted operating margin of 8%, up 339 basis points from the prior year [37] - Net debt was approximately $1.4 billion, with a net debt-to-EBITDAP leverage ratio improving by 10% year-to-date [45] Business Line Data and Key Metrics Changes - The Systems & Support segment saw a 20% increase in third-party MRO sales, benefiting from improving commercial narrow-body build rates [38] - Aerospace Structures segment net sales decreased by 2%, primarily due to the production pause on the 787, but the adjusted operating margin improved to 7% from 4% in the prior year [41] - The company recorded 67 new wins valued at $1.25 billion, including significant contracts with Boeing [25] Market Data and Key Metrics Changes - Global capacity in commercial aviation is now running just 30% off 2019 levels, with 86% of single-aisle and 64% of twin-aisle aircraft in active service [16] - Cargo demand has exceeded 2019 levels in all regions except South America, with Triumph's cargo-related revenue up 41% year-over-year [18] - The defense budget for FY 2022 is expected to be around $778 billion, an increase of approximately $37 billion from FY 2021 [19] Company Strategy and Development Direction - Triumph is focusing on organic growth and improving its core business while managing supply chain pressures [11] - The company is transitioning from restructuring to growth, with plans to double profitability over its planning horizon [32][120] - A new joint venture with Air France/KLM aims to service new fleets, enhancing Triumph's market position [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the worst of the pandemic is behind, with expectations for a strong second half of the year driven by MRO services and higher OEM production rates [52] - The company is proactively managing supply chain pressures and is optimistic about the recovery in international travel [17][29] - Management noted that labor constraints are being addressed through new engagement programs and investments in capital equipment [100] Other Important Information - Triumph's cash flow outlook is improving, with expectations for breakeven free cash flow in Q3 and solidly positive cash flow in Q4 [48] - The company is implementing contractual protections against material cost increases as it renews contracts [30] Q&A Session Summary Question: Clarification on EPS guidance and risk retirements - Management indicated that risk retirements from long-running programs are contributing to improved EPS guidance, with a focus on higher-margin demand [57][59] Question: Update on the Stuart facility divestiture - Management confirmed ongoing discussions with strategic parties regarding the Stuart facility, emphasizing the transformation of the company towards a more profitable core business [63] Question: Free cash flow outlook for the second half - Management highlighted that higher sales in the second half, improved working capital initiatives, and reduced restructuring costs are expected to drive positive free cash flow [68][70] Question: Profitability in the structures business - Management stated that the core structures business is currently breakeven, with expectations for profitability to improve as demand increases [82][85] Question: Supply chain challenges - Management noted ongoing challenges with raw materials and labor, but emphasized proactive measures to mitigate these issues [86][100]