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| EX-99.1 - EXHIBIT 99.1 - EARNINGS RELEASE DATED 2.1.2018 - TRIUMPH GROUP INC | exhibit991q3fy2018.htm |
| 8-K - 8-K - DATED 2.1.2018 - TRIUMPH GROUP INC | form8-kq3fy2018earningsrel.htm |
Daniel J. Crowley, President and Chief Executive Officer
James F. McCabe Jr., Senior Vice President and Chief Financial Officer
Third Quarter FY’18 Earnings Conference Call
February 1, 2018
2Triumph Group — Third 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 — Third Quarter FY'18
Overview
FY 18 Imperatives:
• Eliminating program cost overruns
• Ramping down development spending
• Fixing Aerospace Structures backlog
• Reversing trend of increasing inventory
• Increasing our backlog
Reaffirming FY 18 Sales & Adjusted EPS Guidance
Adjusts Free Cash Use Guidance
FY’18 Q3
Financial Summary
FY’18
Guidance
Net Sales $775M $3.1B - $3.2B
Adjusted EPS * $0.76 $2.25 - $2.75
Free Cash Flow
(Use) $92M ($325M) - ($375M)
*See Appendix for adjustments
4Triumph Group — Third Quarter FY'18
Transformation Progress
Expanding Cost Reduction Opportunities
• $75M in cost reductions YTD towards $96M goal
• Optimizing Supply Chain costs through strategic outsourcing
• Announced combination of TAS & TPC, effective January
1st
◦ Significant synergies across the business units
• Completed 820 continuous improvement events YTD
• Launched enterprise-wide Inventory Attack Team (IAT) to
drive further working capital improvements
Cost reductions on track, enhancing competiveness and financial performance
5Triumph Group — Third Quarter FY'18
Driving Organic Growth
Competitive Wins Customer BU
Landing Gear System SNC Dream Chaser TIS
ECS Pressure Door & Latches Boeing 737/787 TIS
Gearbox (Takeaway) P & W TIS
Prop. Gearbox (New Program) Lockheed Martin TIS
Interiors Refurbishment Major US Carrier TPS
Line (Field) Installations IS&S TPS
Follow-on Business Customer BU
Metal Bond Ti Panels (5 yrs) Bell AH1Z TAS
Partnership Customer BU
Platform Agreement Boeing 767 TAS
(All Variants 10 yrs)
Triumph Thailand MRO BGS-Multi-Platforms TPS
(Exchange Agreement)
Robust Pipeline ($12B, ~50% Military), growing backlog (up 9.5%), and improving win rates (47% for 3QFY18)
6Triumph Group — Third Quarter FY'18
Market Trends
Military
• Defense Outlook $621B (+$66B OCO)
• Triumph is fully engaged in pursuits on multiple platforms:
- T-X, B21, MQ-25, T-38/F15 SLEPS, Light Attack (OA-X)
• CH-53K ramp up, and Military platform "take-aways" add nearer term
growth
Commercial
• Rate increases – accelerated backlog conversion:
– Narrow-bodies, A320 and B737, driving Integrated
Systems growth
– CFM & LEAP engine deliveries rising, driving +30%
yr./yr. revenue growth for TIS (related to gearing on
these engines)
• Strong ultra long range business jet market demand
– Delivery ramp up on Global 7000 FY19
• Beneficial effects with A380 Emirates order
• Industry vertical integration initiatives:
– Nacelles, Avionics, Seats, Space
• MRO focus in Asia; Triumph is well positioned in the region
Increasing Defense opportunities accompany robust and growing Commercial deliveries
FY
18
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7Triumph Group — Third Quarter FY'18
Consolidated Quarterly Results
• Organic sales decrease was 3%
• 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
• Adjusted operating income excludes:
◦ $190M goodwill impairment
◦ $(15M) OPEB curtailment gain
◦ $6M restructuring costs
• Adjusted operating income and margin
improved sequentially
($ in millions) FY’18 Q3 FY’17 Q3 Variance %
Net Sales $775 $845 (8)%
Operating (Loss) Income (120) 55 (318)%
Operating Margin (15)% 7%
Adjusted Operating
Income 62 84 (26)%
Adjusted Operating Margin 8% 10%
On track to acheive FY '18 Revenue & Adjusted Earnings Guidance
8Triumph Group — Third Quarter FY'18
Integrated Systems
Highlights
• Selected to design, develop and produce the Landing
gear system for the Sierra Nevada Dream Chaser
spacecraft
• Awarded new 737 Max engineered component
content and extended 787 content with Boeing
• YTD Book to bill of 1.3:1
Year Over Year Comparison
Financial
• Net sales change included:
◦ Divestitures ($10M)
◦ Decline in A380, 777 and various military programs
• Operating margin impacted by facility consolidation cost
and volume/mix impact
Triumph Integrated Systems’ Landing gear system will be used on the Sierra Nevada Dream Chaser reusable
lifting body Spacecraft
9Triumph Group — Third Quarter FY'18
Product Support
Highlights
• Awarded 3-year contract with Universal Asset
Management to provide component repair support
• Secured 3-year agreement with NokScoot Airlines for
B777 Wheel & Brake maintenance
• Signed agreement with Innovative Solutions &
Support to provide installation services for IS&S
cockpit modifications.
Year Over Year Comparison
Financial
• Organic sales increased 9% due primarily to increased
demand of accessory components
◦ Q3 FY17 sales included $25M from divested
businesses
• Operating margin improved 140 basis points
Triumph Product Support is contracted to provide MRO support for B777 Wheels & Brakes.
10Triumph Group — Third Quarter FY'18
Precision Components
Highlights
• Received follow on AH1Z landing gear orders
• Commenced shipments on M777 Howitzer program
• YTD book-to-bill above 1:1
• Combining with Aerospace Structures in Q4
Year Over Year Comparison
Financial
• Net sales decreased primarily due to decreased
production rates on 777 as well as pricing on 787
• Operating income, excluding $190M impairment of
goodwill, was $4M or approximately 2% margin
• The lower operating margins associated with the 777
and 787 programs are offset by lower consolidation
spend in FY18
Engine link assembly in test fixture.
11Triumph Group — Third Quarter FY'18
Aerospace Structures
Highlights
• Follow-on contract award for 767 program
• Achieved multiple Global 7000 Wing Certification
milestones and related incentives
• Strong operational performance on HALE and V-22
programs with zero defects.
• YTD Book to Bill 1.1:1 supported by Global 7000 and
V-22 orders
Year Over Year Comparison
Financial
• Net favorable cumulative catch-up adjustments on long-term
contracts of $5M
• 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 other Gulfstream
programs
Triumph’s Aerospace Structures produces the 767 horizontal stabilizers, doors, aft fuselage and wing center sections
for both the 767 freighter and KC-46A Tanker variants.
12
Free Cash Flow Walk - FY'18 Q3
Q3 Cash Drivers
• Development programs used $22M
• Restructuring used $6M
• Net working capital improvement of $71M
includes:
◦ Receipt of $250M in additional customer
advances, partially offset by
▪ Build of production inventory
▪ Liquidation of prior advances
• Expected cash use in Q4 driven by liquidation
of advances and timing of deliveries on
development programs
Consolidated ($ in millions) FY’18 Q3 FY’18 YTD
Net Income $ (113) $ (121)
Non-cash items:
Depreciation & Amortization 230 310
Interest Expense & Other 26 72
Amortization of Acquired Contracts (34) (92)
Loss on divestiture — 20
Pension Income (15) (45)
OPEB Income (18) (23)
Income Tax Benefit (24) (24)
Cash uses:
Working Capital Change 79 (221)
Interest Payments (22) (54)
Capital Expenditures (9) (32)
OPEB Payments (3) (10)
Tax Payments (5) (10)
Free Cash Flow (Use) $ 92 $ (230)
Updating guidance -
($325M) - ($375M)
13Triumph Group — Third Quarter FY'18
Net Debt & Liquidity
• Cash and Availability ~ $780M
• Senior Secured Leverage Ratio ~ 1.1x
• Interest Coverage Ratio ~ 3.5x
($ in millions) FY’18 Q3
Cash $ (64)
$800M Revolving Credit Facility 50
$125M Receivable Securitization Facility 109
Capital Leases 58
2013 Senior Notes Due 2021 375
2014 Senior Notes Due 2022 300
2017 Senior Notes Due 2025 500
Net Debt $ 1,328
Sufficient Financial Capacity & Liquidity
14Triumph Group — Third Quarter FY'18
FY'18 Guidance
Net Sales $3.1B - $3.2B
Adjusted EPS * $2.25 - $2.75
Free Cash Use
($450M) - ($500M)
($325M) - ($375M)
Effective Tax Rate ^
~ 6%
~ 1%
Capital Expenditures
$50M - $60M
$45M - $55M
*see adjustments in the appendix
^ Potential opportunity to lower through release of valuation allowance and use of deferred tax benefits from prior divestitures.
Q4 Sales & Adjusted EPS to reach their highest level of FY 18
15Triumph Group — Third Quarter FY'18
Concluding Remarks
• Operational performance accelerating as CI culture takes hold
• Consolidating to three business units to drive additional synergies
• Expect FY19 to be an inflection point
• 25th year anniversary of Triumph in March 2018
16Triumph Group — Third Quarter FY'18
Our Vision
We aspire to be the premier design,
manufacturing and support company
whose comprehensive capabilities,
integrated processes and innovative
employees advance the safety and
prosperity of the world.
Our Mission
As One Team, we partner with our
customers to triumph over the
hardest aerospace, defense and
industrial challenges, enabling us to
deliver value to our shareholders.
Our Values
Integrity
Continuous Improvement
Teamwork
Innovation
Act with Velocity
17Triumph Group — Third Quarter FY'18
Appendix
18
Top Programs
Integrated Systems Aerospace Structures Precision Components
Boeing 777
Boeing 787
Airbus A350
Boeing 737
Boeing 767, Tanker
Boeing V-22
Cessna 680
Bell Helicopter AH1
Boeing F-15
Bombardier C Series
Represents 74% of
Precision Components backlog
Boeing 767, Tanker
Bombardier Global
Gulfstream
Airbus A330, A340
Boeing 747
Boeing 777
NG Global Hawk
Boeing V-22
Embraer E2
Lockheed Martin F-35
Represents 97% of
Aerospace Structures backlog
Boeing 737
Airbus A320, A321
Boeing 787
Boeing AH-64
Boeing V-22
Boeing CH-47
Sikorsky UH60
Lockheed Martin C-130
Lockheed Martin F-35
Boeing 777
Represents 58% of
Integrated Systems backlog
19
Supplemental Data
Pension/OPEB Analysis ($ 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
• The Company anticipates the cumulative effect from the adoption of ASC 2017-07 to be approximately
$130,000 to $150,000 and will be recorded as a current period charge to earnings in our fiscal year
ended March 31, 2019.
20
ASC 606 Adoption
• The adoption of this standard may impact the amount and timing of revenue recognition and the accounting
treatment of capitalized pre-production costs for certain of our contracts.
• The units-of-delivery method is no longer viable and some performance obligations may be satisfied over time
which may change the timing of recognition of revenue and associated production costs for certain contracts.
• For performance obligations satisfied over time, will most likely use an input method as basis for recognizing
revenue
Ex. resources consumed, labor hours expended, costs incurred, time lapsed, or machine hours used
• We will continue to record forward losses relating to unfulfilled contracts and options consistent with historical
accounting policies
• Accounting for tooling, and certain other costs to fulfill contracts are expected to continue under existing guidance
21
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
December 31, 2017
Pre-Tax After-Tax Diluted EPS
Loss from Continuing Operations - GAAP $ (145,540) $ (113,252) $ (2.29)
Adjustments:
Goodwill impairment 190,227 181,540 3.65
Curtailment & settlement, net (15,099) (14,374) (0.29)
Restructuring costs (non-cash) 382 364 0.01
Restructuring costs (cash) 6,149 5,854 0.12
Estimated impact of Tax Reform — (22,398) (0.45)
Adjusted Income from Continuing Operations - Non-GAAP $ 36,119 $ 37,734 $ 0.76 *
* Difference due to rounding
Non-GAAP
Disclosure
Nine Months Ended
December 31, 2017
Pre-Tax After-Tax Diluted EPS
Loss from Continuing Operations - GAAP $ (154,676) $ (120,561) $ (2.44)
Adjustments:
Loss on divestiture 20,371 20,371 0.41
Goodwill impairment 190,227 181,540 3.66
Curtailment & settlement, net (14,576) (13,876) (0.28)
Refinancing costs 1,986 1,891 0.04
Restructuring costs (non-cash) 2,538 2,416 0.05
Restructuring costs (cash) 33,751 32,131 0.65
Estimated impact of Tax Reform — (22,398) (0.45)
Adjusted Income from Continuing Operations - Non-GAAP $ 79,621 $ 81,514 $ 1.64
22
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
Nine Months Ended
December 31, 2016
Pre-Tax After-Tax Diluted EPS
Income from Continuing Operations - GAAP $ 116,658 $ 83,872 $ 1.70
Adjustments:
Triumph Precision Components - Strike related costs 15,701 11,462 0.23
Triumph Precision Components - Inventory write-down 6,089 4,445 0.09
Triumph Aerospace Structures - UAS program 14,200 10,366 0.21
Loss on divestiture 19,124 15,250 0.31
Restructuring costs (non-cash) 10,296 7,516 0.15
Restructuring costs (cash) 28,180 20,571 0.42
Adjusted Income from Continuing Operations - Non-GAAP $ 210,248 $ 153,482 $ 3.11
Three Months Ended
December 31, 2016
Pre-Tax After-Tax Diluted EPS
Income from Continuing Operations - GAAP $ 35,468 $ 29,332 $ 0.59
Adjustments:
Loss on divestiture 14,350 10,476 0.21
Restructuring costs (non-cash) 3,065 2,237 0.05
Restructuring costs (cash) 11,067 8,079 0.16
Adjusted Income from Continuing Operations - Non-GAAP $ 63,950 $ 50,124 $ 1.01
23
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.
The Company provides earnings per share guidance on an adjusted non-GAAP basis excluding the effects of transformation related costs, gains (losses) on
divestitures, impairments, one-time pension & OPEB benefits (charges) and other non-recurring items, such as income tax reform. The following table
reconciles adjusted earnings per diluted share guidance to earnings per share on a GAAP basis.
Three Months
Ended
Nine Months
Ended
Guidance December 31, 2017 December 31, 2017
Cash (used in) provided by operations $ (270,000-330,000) $ 100,786 $ (198,279)
Less:
Capital expenditures (45,000 -55,000) (9,157) (31,932)
Free cash flow (use) $ (325,000 - 375,000) $ 91,629 $ (230,211)
Guidance - adjusted earnings per diluted share $2.25 - $2.75
Per share effect of:
Transformation related costs - cash $(0.60) - $(0.70)
Transformation related costs - non-cash $(0.06) - $(0.08)
Goodwill impairment $(10.33)
Loss on completed divestitures $(0.41)
Refinancing costs $(0.04)
Curtailment & settlement, net $0.28
Estimated impact of Tax Reform $0.45
Guidance - earnings per share- GAAP $ (7.96) - $(8.58)
Non-GAAP
Disclosure
24
(Continued)
FINANCIAL DATA (UNAUDITED)
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
Non-GAAP Financial Measures Disclosures (continued)
We use "Net Debt to Capital" as a measure of financial leverage. The following table sets forth the computation of Net Debt to Capital:
December 31, March 31,
2017 2017
Calculation of Net Debt
Current portion $ 15,135 $ 160,630
Long-term debt 1,359,476 1,035,670
Total debt 1,374,611 1,196,300
Plus: Deferred debt issuance costs 17,886 11,752
Less: Cash (64,388) (69,633)
Net debt $ 1,328,109 $ 1,138,419
Calculation of Capital
Net debt $ 1,328,109 $ 1,138,419
Stockholders' equity 748,514 846,473
Total capital $ 2,076,623 $ 1,984,892
Percent of net debt to capital 64.0% 57.4%
Non-GAAP
Disclosure
