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| 8-K - 8-K - DATED 11.8.2017 - TRIUMPH GROUP INC | form8-kq2fy2018earningsrel.htm |
| EX-99.1 - EXHIBIT 99.1 - EARNINGS RELEASE DATED 11.7.2017 - TRIUMPH GROUP INC | exhibit991q2fy2018.htm |
Daniel J. Crowley, President and Chief Executive Officer
James F. McCabe Jr., Senior Vice President and Chief Financial Officer
Second Quarter FY’18 Earnings Conference Call
November 8, 2017
2Triumph Group — Second Quarter FY'18
Forward Looking Statements
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”,
“intend”, “project”, “may”, “will”, “should”, “could”, or similar words suggesting future outcomes or outlooks. These forward-looking
statements include, but are not limited to, statements of expectations of or assumptions about strategic actions, objectives, expectations,
intentions, aerospace market conditions, aircraft production rates, financial and operational performance, revenue and earnings growth
and profitability and earnings results. These statements are based on the current projections, expectations and beliefs of Triumph’s
management. These forward looking statements involve known and unknown risks, uncertainties and other factors which could cause
actual results to differ materially from any expected future results, performance or achievements, including, but not limited to, competitive
and cyclical factors relating to the aerospace industry, dependence on some of Triumph’s business from key customers, requirements of
capital, uncertainties relating to the integration of acquired businesses, general economic conditions affecting Triumph’s business
segments, product liabilities in excess of insurance, technological developments, limited availability of raw materials or skilled personnel,
changes in governmental regulation and oversight and international hostilities and terrorism. Further information regarding the important
factors that could cause actual results, performance or achievements to differ from those expressed in any forward looking statements can
be found in Triumph’s reports filed with the SEC, including in the risk factors described in Triumph’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2017.
3Triumph Group — Second Quarter FY'18
Overview
Solidified Foundation:
• Transformation on track
• Enhanced financial flexibility
• Improved profitability
Driving Organic Growth:
• Backlog up over 7% year-to-date
• TTM book to bill exceeding 1:1
Reaffirming FY 18 Guidance
FY’18 Q2
Financial Summary
FY’18
Guidance
Net Sales $745M $3.1B - $3.2B
Adjusted EPS * $0.52 $2.25 - $2.75
Free Cash Use ($211M) ($450M) - ($500M)
*excludes restructuring costs of $11M Q2 FY18 and $54M full year and impact of loss on divestiture and refinancing
4Triumph Group — Second Quarter FY'18
Transformation Progress
Enabling Increased Efficiency
• Completed 822 continuous improvement events YTD
• $43M in cost reduction YTD towards $96M goal
• Two additional facility closures announced in Q2
• 3rd divestiture successfully completed in Q2
• Reduced footprint by 1.3M sq. ft. to date
• Closed Bombardier Global 7000 negotiations in Q2
• Improved working capital managementFY 17 FY 18 FY 19
Cost Reduction Run Rate
200
150
100
50
0
$
M
illi
on
s
Supply Chain Efficiency Consolidations Headcount
Period Ending
Cost reductions on track, enhancing competiveness and financial performance
5Triumph Group — Second Quarter FY'18
Driving Organic Growth
Competitive Wins Customer BU
A320 V2500 Support AA / VA TPS
CFM56 Int. Gear Box GE TIS
Follow-on Business Customer BU
V-22 Sponson & Fuse Comp's Boeing TPC
ECS Ducting & Floor Panels Boeing TPC
C5 MLG Rotary Actuators DLA TIS
Partnership Customer BU
T-X Trainer Fuselage and Systems Boeing TAS
$12B Pipeline (50% Military) …..7% YTD backlog growth to $4.3B
Integrated Systems Aerospace Structures Precision Components
Backlog Trend
5,000
4,000
3,000
2,000
1,000
0
$
M
ill
io
ns
FY 2016 FY 2017 Q1 FY18 Q2 FY18
Military Pipeline
8,000
6,000
4,000
2,000
0
$
M
ill
io
ns
2018 JOP Q1 Q2
+7%
+41%
6Triumph Group — Second Quarter FY'18
Market Trends
Military
• Military budget outlook $632B (+OSC)
• Triumph opportunities on multiple platforms:
- T-X, B21, MQ-25, T-38/F15 SLEPS, Light Attack
• CH-53K ramp up adds nearer term growth
Commercial
• Commercial aviation remains long term growth industry
- 41,000+ new airplanes in next 20 years
- 11 year production backlog at current production rates
- Triumph benefiting from narrow-body rate increases
• Increasing long-range business jet outlook
• Higher efficiency engine development programs
• eCommerce shipments driving aircraft sales and MRO
• A/C deliveries & MRO center of mass shifting to Asia
• Vertical integration, off-shoring, IP ownership
• M&A accelerating
Healthy market, growing demand, increasing opportunities.
FY18 Budge
t
$ Billion
s
7Triumph Group — Second Quarter FY'18
Consolidated Quarterly Results
• Organic sales decrease was 12%
• Net sales decrease due to:
◦ Boeing and Gulfstream program
completions and rate reductions
◦ Timing of deliveries on certain
programs
◦ Partially offset by increased
production on 767/Tanker & Global
Hawk/Triton
• Adjusted operating income excludes:
◦ $20M loss on divestiture
◦ $11M restructuring costs
• Adjusted operating income and margin
improved sequentially
($ in millions) FY’18 Q2 FY’17 Q2 Variance %
Net Sales $745 $875 (15)%
Operating Income 19 70 (73)%
Operating Margin 3% 8%
Adjusted Operating
Income 51 89 (43)%
Adjusted Operating Margin 7% 10%
Revenue & Earnings ramp through 2H FY'18
8Triumph Group — Second Quarter FY'18
Integrated Systems
Highlights
• Selected as sole source supplier of aftermarket spare
rotary actuators on the C-5 Galaxy
• Non-core divestiture yielded $65M in proceeds
• Opened new facility in Windsor, CT to consolidate
three locations
• YTD Book to bill of 1.3:1
Year Over Year Comparison
Net Sales ($ in M)
300
250
200
150
100
50
0
$
M
illi
on
s
FY'18 Q2 FY'17 Q2
$234 $245
Operating Margin (%)
25
20
15
10
5
0
%
FY'18 Q2 FY'17 Q2
18% 19%
Financial
• Net sales change included:
◦ Growth in CH47, 737 and 787, offset by:
▪ Divestitures ($6M)
▪ Rate reductions on A380 and 777 and timing
of deliveries on other programs
• Operating margin included $1M in restructuring costs
• Excluding restructuring costs, operating margin was 19%
Triumph Integrated Systems' spare main landing gear rotary actuators will be used on the C-5 Galaxy, one of the
largest aircraft in the world.
9Triumph Group — Second Quarter FY'18
Product Support
Highlights
• Returned to organic growth following short-term
customer deferrals
• Awarded contract extension with OEM Thrust
Reverser support on key programs
• Secured two deals with operators in the U.S. and Asia
to provide MRO support for V2500-A5 Nacelles
• Hosted meeting in China attended by over 50 airline
representatives from various Asian operators
Year Over Year Comparison
Net Sales ($ in M)
100
80
60
40
20
0
$
M
illi
on
s
FY'18 Q2 FY'17 Q2
$68
$86
Operating Margin (%)
30
25
20
15
10
5
0
%
FY'18 Q2 FY'17 Q2
16% 17%
Financial
• Organic sales increased 9% due primarily to increased
demand of accessory components
◦ Sales in FY17 included $23M from divested
businesses
• Operating margin improved sequentially by 370 basis
points
Triumph Product Support is contracted to provide MRO support
for V2500-A5 Nacelles.
10Triumph Group — Second Quarter FY'18
Precision Components
Highlights
• Awarded contract extension on ducting and floor panels on
Boeing commercial programs
• Composites obtained green rating with all external customers
for quality and delivery performance
• Interiors earned green rating from Boeing on their annual
Production Readiness for all Boeing programs
• YTD Book to bill of 1.1:1, including two significant awards at
our Fabrications operating company
Year Over Year Comparison
Net Sales ($ in M)
300
250
200
150
100
50
0
$
M
illi
on
s
FY'18 Q2 FY'17 Q2
$229
$259
Operating Margin (%)
6
5
4
3
2
1
0
-1
-2
%
FY'18 Q2 FY'17 Q2
(1)%
5%
Financial
• Net sales and operating margin decreased primarily due
to decreased production rates and pricing on 777 as well
as pricing on 787
• Operating results impacted by restructuring costs of $4M
and related inefficiencies
Triumph Precision Components floor panels and ducting will be utilized on Boeing’s 737
(legacy and MAX), 747, 767, 777 (legacy) and 787 airplanes
11Triumph Group — Second Quarter FY'18
Aerospace Structures
Highlights
• Selected as a supplier of choice for the Boeing T-X
trainer
• Key Flight Test Vehicle milestones completed on
Global 7000 and production wings delivery ramping
• Successful execution of build rate increase on 767
program
• YTD Book to Bill 1.3:1
Year Over Year Comparison
Net Sales ($ in M)
300
200
100
0
$
M
illi
on
s
FY'18 Q2 FY'17 Q2
$249
$320
Operating Margin (%)
10
8
6
4
2
0
%
FY'18 Q2 FY'17 Q2
5%
8%
Financial
• Net favorable cumulative catch-up adjustments on long-term
contracts of $8M
• Net sales and operating margin decreased as expected due
to completion of and continued rate reductions on certain
Boeing and Gulfstream programs, partially offset by
increased production on 767/Tanker and Global Hawk/Triton
• Adjusted for restructuring costs of $2M, operating margin
sequentially improved 505 basis points
Triumph’s Aerospace Structures will supply the wing, vertical tail and horizontal tail structures for the Boeing T-X.
12
Free Cash Flow Walk - FY'18 Q2
Q2 Cash Drivers
• Development programs used $33M
• Restructuring used $10M
• Net working capital usage of $221M
includes:
◦ Reduction of customer advances
◦ Build of production inventory
◦ Reduced vendor financing
• Peak cash usage through Q3,
recovering in Q4
Consolidated ($ in millions) FY’18 Q2 FY’18 YTD
Net Income $ (5) $ (7)
Non-cash items:
Depreciation & Amortization 41 80
Interest Expense & Other 25 46
Amortization of Acquired Contracts (28) (57)
Loss on divestiture 20 20
Pension Income (15) (30)
OPEB Income (3) (6)
Income Tax Benefit (1) (2)
Cash uses:
Working Capital Usage (221) (300)
Interest Payments (8) (32)
Capital Expenditures (11) (23)
OPEB Payments (3) (6)
Tax Payments (2) (5)
Free Cash Use $ (211) $ (322)
On track to achieve guidance
13Triumph Group — Second Quarter FY'18
Capitalization, Leverage & Liquidity
• Completed $500M bond offering
• Amended and extended Securitization Facility
• Cash and Availability ~ $680M
• Senior Secured Leverage Ratio ~ 1.1x
• Interest Coverage Ratio ~ 3.5x
($ in millions) FY’18 Q2
Cash $ (34)
$800M Revolving Credit Facility 117
$125M Receivable Securitization Facility 89
Capital Leases 61
2013 Senior Notes Due 2021 375
2014 Senior Notes Due 2022 300
2017 Senior Notes Due 2025 500
Other Debt 8
Net Debt $ 1,416
Enhanced Financial Strength & Liquidity
14Triumph Group — Second Quarter FY'18
FY'18 Guidance
Net Sales $3.1B - $3.2B
Adjusted EPS * $2.25 - $2.75
Free Cash Use ($450M) - ($500M)
Effective Tax Rate ^ ~ 6%
Capital Expenditures $80M - $90M$50M - $60M
*excludes restructuring costs of $54M for FY'18
^ Potential opportunity to lower through release of valuation allowance and use of deferred tax benefits from prior divestitures. Expect third quarter effective tax rate of approximately 15%
Expect stronger 2nd half results, with Q4 better than Q3
15Triumph Group — Second Quarter FY'18
Concluding Remarks
• Operational performance stabilizing as CI culture takes hold – transformation setting foundation for future
• Enhanced backlog profitability through renegotiated contracts
• New wins increasing backlog - positions Triumph for sales growth in FY'19
• Disciplined portfolio and balance sheet actions strengthening margins and financial flexibility
16Triumph Group — Second Quarter FY'18
Our Vision
We aspire to be the premier design,
manufacturing and support company
whose comprehensive capabilities,
integrated processes and innovative
employees advance the safety and
prosperity of the world.
Our Mission
As One Team, we partner with our
customers to triumph over the
hardest aerospace, defense and
industrial challenges, enabling us to
deliver value to our shareholders.
Our Values
Integrity
Continuous Improvement
Teamwork
Innovation
Act with Velocity
17Triumph Group — Second Quarter FY'18
Appendix
18
Top Programs
Integrated Systems Aerospace Structures Precision Components
Boeing 777
Boeing 787
Airbus A350
Boeing 737
Boeing 767, Tanker
Boeing V-22
Boeing F-15
Bell Helicopter AH1
Bombardier C Series
NG Global Hawk
Represents 73% of
Precision Components backlog
Gulfstream
Boeing 767, Tanker
Bombardier Global
Airbus A330, A340
Boeing 747
Boeing V-22
Boeing 777
NG Global Hawk
Bell Helicopter 525
Embraer E2
Represents 97% of
Aerospace Structures backlog
Airbus A320, A321
Boeing 737
Boeing 787
Boeing V-22
Boeing AH-64
Boeing CH-47
Lockheed Martin C-130
Sikorsky UH60
Lockheed Martin F-35
Boeing 777
Represents 58% of
Integrated Systems backlog
19
Supplemental Data
Pension/OPEB Analysis ($ in millions) FY’17 FY’18
Pension Expense (Income) ≈ ($67) ≈ ($60)
Cash Pension Contribution ≈ $2 ≈ $0
OPEB Expense (Income) ≈ ($14) ≈ ($11)
Cash OPEB Contribution ≈ $17 ≈ $16
Restructuring ($ in millions) Remaining Estimate FY’18 E FY’19 +
Transformation Related —
Cash Based Costs $72 $52 $20
Transformation Related —
Non-Cash Based Costs 3 2 1
Total $75 $54 $21
20
FINANCIAL DATA (UNAUDITED)
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
Non-GAAP Financial Measures Disclosures
Adjusted income from continuing operations, before income taxes, adjusted income from continuing operations and adjusted income from continuing operations
per diluted share, before non-recurring costs has been provided for consistency and comparability. These measures should not be considered in isolation or as
alternatives to income from continuing operations before income taxes, income from continuing operations and income from continuing operations per diluted
share presented in accordance with GAAP. The following tables reconcile income from continuing operations before income taxes, income from continuing
operations, and income from continuing operations per diluted share, before non-recurring costs.
Three Months Ended
September 30, 2017
Pre-Tax After-Tax Diluted EPS
Loss from Continuing Operations - GAAP $ (6,527) $ (5,378) $ (0.11)
Adjustments:
Loss on divestiture 20,371 20,371 0.41
Refinancing costs 1,986 1,589 0.03
Restructuring costs (non-cash) 1,295 1,036 0.02
Restructuring costs (cash) 10,101 8,081 0.16
Adjusted Income from Continuing Operations - Non-GAAP $ 27,226 $ 25,699 $ 0.52 *
* Difference due to rounding
Non-GAAP
Disclosure
Six Months Ended
September 30, 2017
Pre-Tax After-Tax Diluted EPS
Loss from Continuing Operations - GAAP $ (9,136) $ (7,309) $ (0.15)
Adjustments:
Loss on divestiture 20,371 20,371 0.41
Refinancing costs 1,986 1,589 0.03
Restructuring costs (non-cash) 2,156 1,725 0.03
Restructuring costs (cash) 27,602 22,082 0.45
Adjusted Income from Continuing Operations - Non-GAAP $ 42,979 $ 38,458 $ 0.78 *
* Difference due to rounding
21
FINANCIAL DATA (UNAUDITED)
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
Non-GAAP Financial Measures Disclosures (continued)
Adjusted income from continuing operations, before income taxes, adjusted income from continuing operations and adjusted income from continuing operations
per diluted share, before non-recurring costs has been provided for consistency and comparability. These measures should not be considered in isolation or as
alternatives to income from continuing operations before income taxes, income from continuing operations and income from continuing operations per diluted
share presented in accordance with GAAP. The following tables reconcile income from continuing operations before income taxes, income from continuing
operations, and income from continuing operations per diluted share, before non-recurring costs.
Non-GAAP
Disclosure
Six Months Ended
September 30, 2016
Pre-Tax After-Tax Diluted EPS
Income from Continuing Operations - GAAP $ 81,189 $ 54,541 $ 1.10
Adjustments:
Triumph Precision Components - Strike related costs 15,701 10,834 0.22
Triumph Precision Components - Inventory write-down 6,089 4,201 0.08
Triumph Aerospace Structures - UAS program 14,200 9,798 0.20
Loss on divestiture 4,774 4,774 0.10
Restructuring costs (non-cash) 7,231 4,989 0.10
Restructuring costs (cash) 17,113 11,808 0.24
Adjusted Income from Continuing Operations - Non-GAAP $ 146,297 $ 100,945 $ 2.04 *
* Difference due to rounding
Three Months Ended
September 30, 2016
Pre-Tax After-Tax Diluted EPS
Income from Continuing Operations - GAAP $ 52,590 $ 34,807 $ 0.70
Adjustments:
Loss on divestiture 4,774 4,774 0.10
Restructuring costs (non-cash) 3,740 2,581 0.05
Restructuring costs (cash) 10,462 7,219 0.15
Adjusted Income from Continuing Operations - Non-GAAP $ 71,566 $ 49,381 $ 1.00 *
* Difference due to rounding
22
(Continued)
FINANCIAL DATA (UNAUDITED)
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
Non-GAAP Financial Measures Disclosures (continued)
Cash provided by operations has been provided for consistency and comparability. We also use free cash flow available for debt reduction as a key factor in
planning for and consideration of strategic acquisitions, stock repurchases and the repayment of debt. This measure should not be considered in isolation, as a
measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. The following
table reconciles cash provided by operations to free cash flow available for debt reduction.
We use "Net Debt to Capital" as a measure of financial leverage. The following table sets forth the computation of Net Debt to Capital:
Three Months Ended Six Months Ended
June 30, 2017 September 30, 2017
September 30,
2017
Cash flow from operations $ (99,048) $ (200,017) $ (299,065)
Less:
Capital expenditures (12,085) (10,690) (22,775)
Free cash flow $ (111,133) $ (210,707) $ (321,840)
September 30, March 31,
2017 2017
Calculation of Net Debt
Current portion $ 22,883 $ 160,630
Long-term debt 1,409,130 1,035,670
Total debt 1,432,013 1,196,300
Plus: Deferred debt issuance costs 18,638 11,752
Less: Cash (33,669) (69,633)
Net debt $ 1,416,982 $ 1,138,419
Calculation of Capital
Net debt $ 1,416,982 $ 1,138,419
Stockholders' equity 855,845 846,473
Total capital $ 2,272,827 $ 1,984,892
Percent of net debt to capital 62.3% 57.4%
Non-GAAP
Disclosure
