Triumph (US:TGI)2021-02-03 19:57Financial Data and Key Metrics Changes - Triumph Group reported positive free cash flow in Q3 2021, driven by improved profitability and working capital management [8][12] - Adjusted operating income for the quarter was $38 million, with an adjusted operating margin of 9%, up from $21 million and 4% in the previous quarter [34][36] - The company maintained nearly $0.5 billion in liquidity while contributing $40 million in stock to its pension plan, reducing future cash obligations [14][42] Business Line Data and Key Metrics Changes - Systems & Support segment net sales increased by 4% sequentially, with military sales comprising 56% of the volume, up from 31% in the prior year [35][18] - Aerospace Structures segment experienced a decline in net sales due to planned sunsetting and transitioning programs, but achieved breakeven cash from the completion of the G280 program [37][19] - Military sales increased by 33% year-over-year, driven by platforms such as the V-22 and CH-47 [18][26] Market Data and Key Metrics Changes - The commercial aviation recovery is progressing slowly, with increased freighter utilization and air traffic leading to higher MRO demand [9][23] - OEM production rates have stabilized, with expectations for increased narrow-body volumes from Boeing and Airbus [9][24] - The backlog in Systems & Support is now 55% military, reflecting a continued focus on military platforms [27] Company Strategy and Development Direction - Triumph Group is pivoting towards military sales and reducing reliance on commercial aerospace, with a focus on operational improvements and margin enhancement [10][47] - The company aims to exit non-core operations and become a largely pure play Systems & Support provider [21][45] - Strategic actions include renegotiating contracts and divesting non-core assets to enhance liquidity and competitiveness [70][72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the worst of the pandemic is behind, with stability in OEM production rates and early signs of recovery in MRO demand [46][49] - The company anticipates breakeven free cash flow in Q4 and expects to start fiscal year 2022 in a more favorable configuration [15][44] - Management highlighted the importance of military spending and the potential for growth despite a flattening budget [114] Other Important Information - Triumph closed $400 million in new wins for the quarter, including contract extensions and awards [28] - The company expects to maintain strong liquidity and continue evaluating actions to enhance its capital structure [45][44] - The company has a net debt of approximately $1.6 billion and combined cash and availability of about $489 million [42] Q&A Session Summary Question: Update on the structures business and loss-making programs - Management confirmed that the 747 is the only remaining loss-making program, with other programs exited that were not contributing value [56][57] Question: Military sales growth and potential pull forward - Management noted an acceleration of cash payments from the DoD but did not see sales pull ahead, rather a ramp-up in volume [58][59] Question: Contract renegotiations with Boeing - Management indicated favorable pricing in contract renewals, extending agreements for 5 to 7 years [68][69] Question: Cash flow and working capital outlook for 2022 - Management expects continued improvements in working capital efficiency and anticipates cash flow to remain a tailwind [80][82] Question: MRO demand and aftermarket opportunities - Management reported an 11% increase in MRO receipts, with expectations for continued recovery in demand across various regions [102][118] Question: Military pipeline and new opportunities - Management highlighted a mix of retrofits, upgrades, and new builds in the military pipeline, with a focus on maintaining a balanced program lifecycle [105][110]