Triumph (TGI) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Triumph Group reported consolidated revenue of $287 million for Q2, reflecting a year-over-year increase driven by a 13% growth in aftermarket revenue, which more than offset temporary OEM revenue headwinds [11][12] - Adjusted operating income rose to$ 36 million, up 44% from the previous year, with an adjusted operating margin of 11%, expanding 338 basis points [11][12] - Adjusted EBITDA increased by 26% to $43 million, with an EBITDA margin of 15%, up approximately 300 basis points from the prior year [11][12] Business Line Data and Key Metrics Changes - Aftermarket revenue surged 13% year-over-year, contributing over 60% of the company's profit, with commercial aftermarket growth at 34% due to an aging fleet [5][12] - Military OEM revenues increased, representing over 20% of total revenue, with military backlog growing 4% in the first half [6][12] - Commercial OEM revenues included sales across more than 30 programs, contributing 40% to total sales but only 13% to profitability, indicating potential margin upside as the market recovers [6][12] Market Data and Key Metrics Changes - The aftermarket segment is expected to grow due to a shortage of new aircraft and the emerging 787 landing gear overhaul cycle, with gross margins of 57% in this segment [5][12] - Total backlog increased by 7% year-over-year to$ 1.9 billion, driven by military and commercial platform growth [10][12] - The company anticipates continued strong demand in the aftermarket, with a significant contribution from proprietary products driving profitability [12][12] Company Strategy and Development Direction - Triumph Group is focusing on organic growth by expanding solutions in addressable markets, with strategic investments in new development labs and upgraded production capabilities [8][10] - The company aims to enhance shareholder value by streamlining operations and focusing on a robust inventory of IP-based products, positioning itself as an aftermarket-driven company [16][12] - The management is optimistic about the future, citing strong demand across a diversified customer base and the potential for a super cycle in the aerospace market [39][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving updated fiscal '25 objectives, driven by strong aftermarket demand and improved operational efficiency [16][12] - The company has successfully restored its interiors business to profitability through cost reductions and a favorable settlement with Boeing, which is expected to enhance margins moving forward [11][12] - Management highlighted that the current strong commercial aftermarket demand is expected to continue for years, supported by a growing installed base of proprietary products [12][12] Other Important Information - Triumph Group's net debt was reported at $868 million, a 43% decrease from the previous year, with leverage down to 5.5 times [14][12] - The company raised its fiscal '25 guidance for both earnings and cash flow, expecting net sales of approximately$ 1.2 billion and an EBITDA range of $190 million to$ 195 million [15][12] - The company is not actively seeking to divest any operating companies, focusing instead on strengthening its core businesses [32][12] Q&A Session Summary Question: Focus on guidance and profitability drivers - Management emphasized that the aftermarket is the key driver of profitability, with solid double-digit growth expected to continue [18][19] Question: Cash flow guidance and working capital - Management indicated that cash flow is expected to be positive in the second half, primarily driven by strong aftermarket performance and improved profitability [19][20] Question: Equitable adjustment on interiors - Management confirmed that the adjustment is part of ongoing negotiations and is expected to positively impact future pricing [21][22] Question: Future portfolio shaping strategy - Management stated that there are no current plans for significant divestitures, focusing on growing core businesses [32][34] Question: Production rates and supply chain pressures - Management expressed confidence in maintaining production rates despite supply chain challenges, with expectations for gradual ramp-up in production [40][48]