Triumph Group - Q1 2023

Transcript

Speaker 0

Welcome to Triumph's First Quarter Fiscal Year 2023 Results Conference Call. This call is being carried live on the Internet. There is also a slide presentation included with the audio portion of the webcast. Please ensure that your pop up blocker is disabled if you are having trouble viewing the slide presentation. All participants will be in listen only mode.

After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. In addition, please note that this call is the property of Triumph Group, Inc. And may not be recorded, transcribed or rebroadcast without explicit written approval. I would like to introduce Tom Quigley, Triumph's Vice President of Investor Relations and Controller, who will provide a brief opening statement.

Speaker 1

Thank you. Good morning, and welcome to our Q1 fiscal 2023 earnings call. Today, I'm joined by Dan Crowley, the company's Chairman, President And Chief Executive Officer and Jim McCabe, Senior Vice President and Chief Financial Officer of Triumph. During our call, we'll be referring to the supplemental slides, which are posted on our website. Certain statements on this call constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause Triumph's actual results, performance or achievements to be materially different from any expected future results, performance or achievements expressed or implied in the forward looking statements. Please note that the company's reconciliation of non GAAP financial measures to comparable GAAP measures is included in the press release, which can be found on our website at www. At trifecroup.com. Dan, I'll turn it over to you.

Speaker 2

Thanks, Tom. Earlier today, we reported our Q1 results For fiscal year 2023, I'm pleased to share that despite the challenging macro environment, Triumph demonstrated organic growth in its continuing operations and completed its portfolio transformation to position the company for the future. Our Q1 results exceeded our expectations overall. On Slide 3, I summarize the quarter's highlights. First, we generated organic growth in our continuing operations, driven by improving commercial OEM and MRO demand.

With the sale of its Stewart, Florida plant, our 16th and final divestiture, Triumph has exited its large structure business consistent with our strategic plan. Backlog is up 7% with expanding book to bill and new partnerships. Triumph is well positioned to realize the benefits of our diversification strategy. Our actions to mitigate supply chain constraints have lessened the impact on Triumph as we continue to partner with our customers and suppliers to ensure supply continuity and affordability. With years of heavy cash use now behind us, we are updating our revenue and earnings guidance and reiterate Our cash guidance for fiscal 2023 reflecting improving sales and cash flow.

Q1 marked an inflection point for the company on cash. We retired obligations of over $100,000,000 From our legacy structures business, improved cash use from a year ago and expect to be cash flow positive over the balance of the fiscal year. All the enablers for value creation and deleveraging are headed in the right direction. The time and energy of our team that allowed us to execute on our multiyear restructuring have shifted to organic growth And expansion of our products, services and customer base, all of which enhance our financial forecast and predictability. Coming off a productive Farm Bureau Air Show, our team is excited for the future.

Bottom line, our first quarter results keep us on track with our goal of doubling profitability over fiscal years 2022 to 2025, driven by improved OEM production rates, Expanded MRO volumes, enhanced pricing from recent contract extensions and lower cost structure as a result of our transformation. As we pursue expanded margins, we're also focused on growth. In the Q1, we secured over 422,000,000 And new orders across our continuing business, backlog has troughed and begun to grow after years of top line contraction. Commercial backlog in Triumph's Systems and Support business is up 24% for the quarter paced by an 80% increase 7 37 MAX backlog, partially offset by a modest decline in military backlog. Total company and systems and support book to bill ratios for the quarter were approximately 1.5.

Both MRO receipts and new RFP volume remain very high. The Triumph delegation just returned from the 2022 Farnborough International Air Show, the first in person event since 2018, where more than 15,000 exhibitors met, signaling a return to a normalized aerospace market. I met with the CEOs of more than 20 of our key customer organizations and our team met with over 100 suppliers. Industry participants were optimistic, tempered with some concern around the supply chain's ability to support the anticipated ramp rates. In the last week, Boeing, Airbus and GE signaled short delays in the timing of production ramp step ups, typically 3 to 6 months, which will not have a material impact on the narrow body ramp or Triumph's financial outlook.

Our collective challenge Remains how quickly can we get to rates far greater than achieved prior to the pandemic. In the quarter, Triumph announced plans to partner with Mubadala's SEDD engine overhaul business in the UAE to play a larger role And MRO expansion in the Middle East. We view this formative partnership as complementary to our recently launched joint venture with Air France KLM called ExCel. Both accelerate our capabilities and footprint and provide early life access to engine component MRO. Triumph and Senate will jointly Triumph also announced an agreement with Moog in which we combined our respective 787 landing gear and flight control actuator offerings under our power by the hour contract for an Asian carrier.

You can expect Triumph to pursue more partnerships And new channels to market to expand our reach and top line. Last, Triumph is collaborating with Lockheed Martin to jointly develop components and subsystems for future aircraft thermal management systems. As aircraft electrification advances, new ways to dissipate heat will be needed and we are creating IP to support these demands. Other wins for the quarter can be seen on Slides 45. Despite short term supply chain pressures, The air travel market and carrier financial health both continue to recover.

The improving travel demand is aiding industry profitability, which coupled with higher fuel prices increases the prospect for new aircraft orders and rate increases. On July 1, IATA forecasted North American operators would post a profit for 2022, while global operator We are posting near breakeven profitability, a substantial turnaround since the losses of 2020. This air traffic recovery is reflected in Triumph's MRO revenue, which is up 95% for the quarter and 38% sequentially. Cargo revenues declined 21% for the quarter, though still operating at levels above those of 2019 as commercial transport belly capacity returns. Triumph's engine customer revenues rose 23% for the quarter, driven by single aisle LEAP engine gearboxes.

GE anticipates flattened demand over the next few months as the supply chain prepares for the ramp, but we remain confident in the longer term outlook. Military spending remains strong with the President's fiscal 2023 Defense Department request of $773,000,000,000 expected to benefit from both House and Senate Appropriations Committees recommended increases of approximately $37,000,000,000 to $45,000,000,000 The platform supported by Triumph, which are enjoying strong budget support, Include the CH-fifty 3 ks, the CH-forty 7, the F-fifteen, T-sevenA and Joint Strike Fighter. As said, Triumph's military end market was off 20% for the quarter, driven by prior year orders on C-one hundred

Speaker 3

and thirty and

Speaker 2

E-2D, though These declines were offset by commercial end market improvements. This is primarily a timing issue and we expect military revenues to recover and normalized over the course of the year. Triumph continues to proactively mitigate supply chain issues. Deliveries from suppliers were 80% to 90% on time in full in Q1. We put strategic order Coverage in place to secure allocation of resources and protect our most critical programs.

Triumph has very little exposure to supply chain impacts from the war in the Ukraine. While our suppliers are not Achieving the 100% on time performance we expect, we were able to meet our sales targets in Q1 and anticipate recovery quarter over quarter with over $40,000,000 of past due backlog expected to be retired by the end of fiscal 2023. We are working to offset potential price increases directly with suppliers and aggressively adding alternative suppliers where possible. As a result, these increases have typically totaled less than 2% of sales and we expect any impact to be immaterial to our results. Our top supply chain priority remains securing near term delivery assurance and available capacity from our suppliers as the industry In the quarter, we issued our sustainability and annual report, which includes our recently developed 5 10 year sustainability goals.

We look forward to solidifying our path to meet these targets, which are essential drivers to our sustainability programs in the years ahead. As noted in the report, Triumph is powered by diversity, where our competitive strength comes from a complementary blend of people, products, platforms and end markets. This broader take on diversity helps Triumph to be more resilient and perform at higher levels, so that we remain differentiated in the market. We are committed to creating value in a sustainable way, investing in our people and processes and improving our quality, productivity and Agility. With that, Jim will now take us through the results for the quarter in more detail.

Jim?

Speaker 3

Thanks, Dan, and good morning, everyone. As I review the financial results for

Speaker 2

the quarter, please refer to

Speaker 3

the presentation we posted this morning. I will be discussing adjusted results. So please see our earnings press release and the supplemental slides in the presentation for the explanation of our adjustments. Triumph's Q1 results exceeded our plan and we are on track to achieve our full year objectives. In fact, we're trending towards the high end of our previous revenue guidance and we expect positive free cash flow over the balance of the year.

Our consolidated results for the quarter are on Slide 8. Revenue of $349,000,000 reflects increased volume from narrow body platforms offset by decreased military rotorcraft volume compared to last year. Excluding revenue from divested businesses and sunsetting programs and despite the current market environment, we still grew revenue organically 1%. Adjusted operating income of $33,000,000 represents a 9% margin, up from 8% a year ago, including favorable closeout of legacy programs. Adjustments this quarter include a $17,000,000 revenue reduction for consideration payable to a customer related to the Stewart divestiture and $700,000 of restructuring costs from facility closures and reductions in SG and A and overhead.

Systems and Support segment results and highlights are on Page 9. Organic revenue was up 1% in the quarter, including higher commercial narrow body volume, which was partially offset by decreased military rotorcraft sales, primarily from above average military spare sales in the prior year period. Distance and Support operating income was $33,000,000 or 13% margin, which is down slightly from the prior year due to sales timing and mix. Commercial OEM sales were a significant source of growth in this segment, up over 30% in the quarter. Results for our Structures segment are on Slide 10.

Excluding divestitures and sunsetting programs, Structures revenue of $95,000,000 was up 2% organically. 7 37 production rate increases in interiors and 767 delivery timing contributed to the organic growth, partially offset by lower wide body sales. Operating income improved with the favorable closeout of 767 production blocks and favorable settlements on certain 747 obligations. With the Stewart divestiture on July 1, We've completed our planned exit of the Large Metallic Structures business. The previously announced exit of our Spokane interiors facility is also now complete.

The continuing business in this segment is the interiors insulation and ducting business. Our free cash flow walk is on Slide 11. Our $96,000,000 of cash used this quarter included $21,000,000 of non recurring cash drivers. These drivers included $4,000,000 for previously accrued 747 and legacy structure shutdown costs and $17,000,000 of free cash used from the recently divested The Stewart divestiture completely relieved Triumph for the remaining advanced repayment obligations, and we expect to be cash flow positive over the balance of the year. As for the quarterly cash flow cadence, we expect our usual seasonality with a modest use of cash in Q2, Breakeven to slightly positive cash flow in Q3 and strong cash generation in Q4.

We continue to expect capital expenditures of $30,000,000 for the fiscal year as we invest in efficiency improvements and profitable growth. The schedule of our net debt and liquidity is on Slide 12. At the end of the quarter, we had just under $1,500,000,000 of net debt. We had about $200,000,000 of cash and availability, which is more than sufficient for our projected needs. We're continuing to reduce our leverage as planned by expanding EBITDA and free cash flow in our continuing businesses.

We regularly review our capital structure and our options to continue to improve it before our next maturity in June of 2024.

Speaker 0

For our

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full year guidance, turn to Slide 13. Based on expected aircraft production rates and the resulting demand on each of our facilities, we expect FY2023 revenue to be at the high end of our previous guidance range of $1,200,000,000 to $1,300,000,000 We are raising our GAAP EPS guidance by $1.11 to $1.51 to $1.71 per diluted share, primarily due to the expected Q2 gain on the Stewart divestiture and related accounting impacts and a reduction in expected non cash pension income. Our updated adjusted EPS guidance of $0.28 to 0 point 48 dollars reflects a $0.12 reduction in expected non cash pension income compared to prior guidance. Cash taxes net of refunds received expected to be approximately $7,000,000 for FY 2023. And interest expense is expected to be $129,000,000 including $123,000,000 of cash interest.

For the full year, excluding the impacts of the actions and structures, We expect to generate $30,000,000 to $45,000,000 of cash from operations with approximately $30,000,000 in capital expenditures, resulting in core free cash flow of breakeven to $15,000,000 in fiscal 2023. We're on track with our plan to double our continuing FY 2022 EBITDA to approximately $310,000,000 by fiscal 2025.

Speaker 4

This is

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fueled by increasing demand, pricing opportunities, cost efficiencies and improved mix of business for our portfolio actions. For fiscal 'twenty six, we have planned for consolidated EBITDA margin of over 20%, a free cash conversion rate on sales of over 10% and a leverage ratio of between 3 and 4 times adjusted EBITDA. In summary, our Q1 results Our plan and we are on track to achieve our full year and multi year objectives. The sale of Stuart completed our exit from the Large Metallic Structures business and relieves us from the advance obligations. We expect to be profitable and cash positive for the balance of the year.

Now I'll turn the call back to Dan. Dan?

Speaker 2

In summary, I'm pleased with the Q1 results achieved in a challenging macro environment. And to be done with our restructuring plan and years of heavy cash use. Both provide us with solid momentum as we progress through fiscal 2023. I'm also encouraged by the commercial market recovery with rapidly improving MRO uptake, closely followed by OEM rate increases as our backlog grew meaningfully in the quarter. Our strong book to bill of 1.5 coming out of Q1 confirms we are winning new business and our company is poised to expand top and bottom lines year over year.

The last 2 plus years in our industry have not been for the fate of heart. Despite the pandemic, supply chain constraints, rising fuel cost and labor shortages, Triumph remains on track to achieve our full year objectives. I look forward to reporting on our progress as we continue our efforts to further unlock the hidden value across our business and deliver value for the benefit of all our stakeholders. We're happy now to take any questions.

Speaker 0

We will now begin the question and answer session. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. And our first question will come from Seth Seifman with JPMorgan. Please go ahead.

Speaker 5

Hey, thanks very much. Good morning. Good morning, Matt. I wonder if you could give us a little more color on kind of what the Structures segment is going to look like going forward when it's just interiors. How should we think about the sales and EBITDA in the quarter just passed.

And then when we think about going from Q1 to Q2, the adjusted EBITDA in that segment was about 17,000,000 Where does that go in the Q2 when it's just interiors?

Speaker 2

Let me start out. First of all, Interior is a business with a high growth rate. They've been beat down to the max production pause and now With that back at 31 a month, it's coming up plus their win on the A220, which is a program that's going to more than double in rate over the next 3 years. So they've got a good backlog of business. And we've used the time during the softness of the flat spot in that business Consolidated from our Spokane operation, ducting and blankets down into Mexicali.

So that plant now is going to add more scale and more So we've got 2 plants, Zacatecas and Mexicali, plus our operations that are Ford based in Europe that support Airbus And we're optimistic about the recovery. Jim?

Speaker 3

Yes, Seth, you mentioned this quarter, of course, we had favorable closeout on the programs Stuart and 767 and some pickups on 747 as we mitigate those end of life liabilities. But going forward, what the continuing business is interiors, it's around $120,000,000 run rate business, but it's Increasing faster than most of the businesses as narrow body business comes back. It's benefiting from the 737 MAX ramp. And when 787 picks up again, it will benefit as well. It had been hovering around breakeven, but in the second half of the year, it will be profitable in generating cash.

So we like

Speaker 2

the prospects.

Speaker 3

We have a good backlog and we're market leader in that business.

Speaker 5

Okay, cool. So just to follow-up on that real quick Then I'll wrap up. When we think about the EBITDA going from Q1 to Q2, there's probably something like A $15,000,000 headwind sequentially quarter on quarter from the Stewart going away as well as $5,000,000 or so from the AMJP. So quarter on quarter, next

Speaker 3

So I think there's still opportunities to Close out the 747 and other legacy cash obligations that we adjusted out for the core cash. And to the extent we can get them for less than their forecast, That may be opportunities for pickups moving forward. But otherwise, you're correct. All things being equal, the closeouts are one time in Q1, But there are additional opportunities for the balance of the year as we get out of the legacy businesses.

Speaker 5

Okay, got it. Thanks very much guys.

Speaker 3

Thank you.

Speaker 0

Our next question will come from Peter Arment with Baird. Please go ahead.

Speaker 6

Yes, thanks. Good morning, Dan and Jim, Congrats on getting Stuart on. Obviously, a lot of work there. Hey, Jim, maybe if you could just update Your updated thoughts on the stranded costs that are still going to be lingering and you're looking to settle. I know you had mentioned

Speaker 4

On

Speaker 6

the last call that was it was upwards of $75,000,000 potentially, but just maybe if you could just give us some updated thoughts there that would be great.

Speaker 3

Yes. Thanks, Peter. The $70,000,000 to $75,000,000 is what we identified in our guidance as being the you're calling it stranded costs, but the legacy costs to exit the structure segment and there's more opportunity than there is risk in mitigating those going forward. In the Q1, we spent $38,000,000 of that was cash used in the Stewart business, which is gone with this divestiture. There There's some, I think $4,000,000 of structured shutdown costs outside of Stewart.

But going forward, you're looking at about $50,000,000 left roughly over the balance of the year. I think that's going to be a little more back end loaded. And all those are opportunities for negotiation as there's assertion both ways with some of these vendors, and we can work out settlements below what we had estimated if we work hard at, which we are. So that's the opportunities I referred to as Seth Just to mitigate those moving forward, but they are one time. So it's important to identify those.

They're not something that's going to recur past this year.

Speaker 6

And just as a follow-up to that, Jim, do you when you look now at the business and pro form a with Steward and still the negotiations, And we're just thinking about 2024 and beyond. It seems like a lot of these one time issues will be gone. Is that correct?

Speaker 3

Yes, absolutely. And that's why we put out the multiyear So that you can see where we think we're headed. It's the most frequent question I get is about what is normalized margins, normalized free cash flow. So we have this bottoms up plan, which I referred to again, that we're going to be 20% plus on a consolidated EBITDA margin out there in 2026 with 3 or 4 times leverage with the current portfolio moving forward, and free cash flow conversion in excess of 10% of sales. But that's going to happen faster than we think because Stewart behind us is the last divestiture and we have good tailwinds in volumes, Pricing opportunities, cost efficiencies from the actions we've already taken.

And with this new portfolio, we have a higher margin business with more IP and more aftermarket.

Speaker 6

Terrific. Thanks so

Speaker 0

much. Our next question will come from Sheila Kayeoglu with Jefferies. Please go ahead.

Speaker 4

Good morning, Dan and Jim. I just wanted to follow-up on the last question and maybe a little bit shorter term. Can you walk us through the free cash flow for the year? Jim, you mentioned Q2 is modest use breakeven in Q3 and then big ramp. Just given the $75,000,000 of core free cash flow in Q1, what really reverses?

Payables were a big usage in the quarter. Can you just Help stair step that for us a little bit more.

Speaker 3

Sure, Sheila. I mean, there's normal seasonality in our business absent the divestitures. We increased working capital in the Q1, and then we kind of have a stable Q2 and Q3, and then we have a very strong Q4,

Speaker 1

Just

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the nature of the industry we're in and the programs we're on. So the cash used in the Q1 is generally a payoff of the payables from the strong Q4 we had at the end of last fiscal year and then our ramping of inventory for the balance to deliver out through the balance of this fiscal year. So working capital is the biggest driver there in cash use. In terms of the cadence, we and you mentioned core free cash flow, so I'll speak to that. We used $75,000,000 of core free cash flow in Q1.

We're going to be a modest user in the tens of 1,000,000. Roughly, let's say $20,000,000 to $30,000,000 of cash use maybe in Q2 could be better and then about equal amount of positive in Q3 And then a strong generation in Q4 as we have in the past. So it's going to be a lot cleaner, a lot more predictable And we have a good handle on it. And that's why we can give guidance with a lot of companies though.

Speaker 4

So it's a lot of the working capital moves rather than a big ramp you have Systems profit.

Speaker 3

That's correct. Okay. There's changes in delivery rates from OEMs. We still have production rates that lag that. So we know our production rates, we have frozen windows, so we have good view of what the rest of the year looks like.

Speaker 4

Great. Thank you.

Speaker 0

Our next question will come from Ron Epstein with Bank of America. Please go ahead.

Speaker 7

Yes. Good morning, guys. Just Just quickly, how are you what's the strategy you guys are using to deal with inflation, both raw material costs And labor costs, I mean, you got to be seeing it from your own raw material suppliers and then your subsystem suppliers. What are you doing to mitigate that?

Speaker 2

Thanks, Ron. There's about 12 categories of commodities we track and we looked at the most recent average requested price up And most of them are single digit. The ones that stick out are the cost of machine products and raw materials and composites But a lot of what we spend money on, on Chemicals and logistics and castings and forgings haven't gone up a lot. And we've been able to mitigate those cost risks Through a variety of levers. 1, we can sometimes pass it through to the customer.

Sometimes our contracts Allow for a sharing of cost with the supplier. We've done a lot more dual sourcing And we've expanded our low cost country sourcing beyond Korea, which was a big push over the last 2 years into India and other countries, Because there is capacity out there that will help keep people in check on price up. So we've been able to mitigate about 2 thirds of the increase, Which has been on average about a 6% increase. That's why I mentioned about 2% of sales is the impact. We don't really buy from Suppliers that are in or near supply in the Ukraine, and we're starting to see some costs that have been high lately like Shipping costs come down just in the last month.

Costs for things like containers have pulled back and fuel costs are starting to trend down. So long term, we expect this to linger through calendar 2023, but we don't see it as a big impact.

Speaker 3

Yes. I'd add that I think generally we own a lot of IP on our products. And the vendors that are sole source and that have The IP that we need are a small percentage of the total procurement. We spend about $800,000,000 this year on materials. And we've done some good strategic sourcing So that we have passed through where necessary materials and we have dual sources wherever possible to make sure we remain competitive.

So So we've done a good job managing it. Some of its work that was done in previous years we're benefiting from and some of it is fixing ourselves going forward to make sure we're Not inflation proof, but inflation resistant.

Speaker 7

Got it. Thank you.

Speaker 2

Thanks, Rob.

Speaker 0

Our next question will come from Michael Ciarmoli with Truist. Please go ahead.

Speaker 7

Hey, good morning guys. Thanks for Taking the questions here. Just back to Seth's question on the structure. So just to be clear, we can assume something around a $30,000,000 quarterly run rate going forward. And then just to be clear, is that are those profitable revenues at this point from an operating margin standpoint?

And Can you give us kind of the range of where that profitability is?

Speaker 3

Yes, sure, Mike. They are profitable for the full year. They're probably a little unprofitable in the first half and they're more profitable in the second half. The ramp of the narrow buys is helping out a lot. But right now, they're low single digit profitability.

Over the multiyear horizon, they're growing into the teens, And that's where they've been historically. So we even hit

Speaker 2

the 20s in that business pre pandemic, which was a Profitable business and because we did a lot of cost takeout during the pandemic, our margin upswing should be good. And the most You recall, we booked $1,000,000,000 worth of business in interiors. It gives us a 10 year run rate that we can go optimize around. So we're optimistic On the margin outlook for that business.

Speaker 7

Got it. And then just how are you planning for the production rates on the 787 for kind of the remainder of this year and maybe how it might impact that interiors business?

Speaker 2

Yes. There's been a lot News on 787 just in the last week. We're thankful that Boeing appears to be close to the FAA approvals that will allow them to resume Shipping. We've been delivering at rates around 2 to 3 a month of late. And remember, we were at 14 Before the rates started to decline.

And with the outlook of burning off Boeing's Deliveries, there are 120 aircraft that are in storage, roughly half of which they plan to burn off in the next year or 2. Deliveries are expected to ramp up to somewhere around 7 a month. And that helps us because about 5 or 6 of our plants Our important actuator suppliers on the 787. So it's going to be a tailwind for us now that they're close to resuming production. And we're confident that the backlog of this program

Speaker 3

is almost

Speaker 2

500 outstanding orders for the 787 And the increasing demand for widebody, a lot of folks predicted that international travel wouldn't pick up till 2024, 2025. Well, it's already back within 20% of 2019 levels and ramping steadily. So I think we're going to hit 2019 levels in the calendar year And then blow through that in 2023, 2024. So we're bullish on this. We'd like to be back in 20 14.

We're not there yet, but We'd be happy to, Seth. Yes.

Speaker 3

And I'd add that we did reset our contract at the beginning of the year. So we'll get good pricing based on current costs Moving forward as the volume increases and put in perspective, 787 is only about 4% of our backlog right now. You can see our Backlog breakdown on Page 16 of the presentation. So our largest program right now is the 737, which is 16% of our backlog is chippable in the next few years. So it's an important driver for us, but that diversification is helping us out.

The 37 is the bigger driver right now.

Speaker 7

Got it. Perfect. Thanks,

Speaker 3

guys. Thank you.

Speaker 0

Our next question will come from David Strauss with Barclays. Please go ahead.

Speaker 8

Thanks. Good morning.

Speaker 3

Good morning.

Speaker 8

The could you just comment on the margin at Systems and Support? I think the EBITDA margin was around 16%, which is lower than what we've seen, lower than what you're targeting. Can you just talk about that and how we should expect to See that margin progress as we go through the year.

Speaker 3

Sure. I think Q1, we mentioned the sales mix change. Last year, we benefited from some above average sales in spares, foreign military sales and another OEM program that was higher volume last year. That's going to normalize moving forward. So, it was really a tough comp against last year.

Moving forward, we're going to see the increased expansion of margins. Typically, the Q1 is our lowest margin period for the business and for that segment. So I think slight increases over the next two quarters and then a strong margin in And then of course, going forward, we're still headed towards that multiyear goal of doubling our profitability by FY 2025. And out there, you're going to be in the range of 20% margins for the overall business, which means even higher for systems and support.

Speaker 8

And Jim, on that, when you say double profitability, what is the comparable number, the clean kind of EBITDAAP Number that we should be thinking about in terms of doubling?

Speaker 3

Yes, David, thanks for that question because I tried to point that out because it can get a little foggy with the divestitures. But last year, our continuing businesses had EBITDAP in about $155,000,000 So that's what we're talking about. FY 2022 continuing EBITDAP of 155 Doubling and I mentioned in my earlier remarks, dollars 310,000,000 of EBITDAP is the target for FY 2025, which is a doubling of that FY 2022 number.

Speaker 8

Okay. That's helpful. Thanks. And if I'm I apologize if I missed this. Were there are there any net cash proceeds from Stuart or is it just the payoff of the advance of balance?

Speaker 3

Stuart, Besides being strategically important, the biggest benefit was the advance relief. So the advances were integral to that business. They need to be resolved as Part of the transaction they were. That's over $104,000,000 of cash flow that would have gone out this year that was released as part of the transaction. And we exit the business, which is better owned by someone else because it is longer cycle, more capital intense, Doesn't really have any aftermarket, doesn't have a lot of IP.

There's others that fits their model. It didn't fit ours. So we're happy to complete that transaction On good terms.

Speaker 8

All right. Thanks very much.

Speaker 3

Thanks, David.

Speaker 0

This concludes our question and answer session. The conference is now ended. Thank you for attending today's presentation. You may now disconnect.