Triumph Group - Q1 2025
August 7, 2024
Executive Summary
- Q1 FY25 revenue rose 7% to $281.0M, driven by a 43% jump in commercial aftermarket and an IP sale (~$5M), while GAAP diluted EPS was $(0.24) and adjusted EPS was $(0.06); management flagged continued OEM softness in Q2 with recovery in H2.
- Operating income guidance for FY25 was lowered to ~$132.5M (11% margin) from $140.0M (12%) solely due to a $7.5M legal contingency; sales (~$1.2B), adjusted EBITDAP (~$182M; 15% margin), and FCF ($10–$25M) were maintained.
- Balance sheet progress continued: TGI retired $120M of debt in Q1, net debt ended at ~$821M, and both Moody’s (to B3) and S&P (to B-) upgraded credit; liquidity stood at ~$203M at quarter-end.
- Near-term focus items for investors: expected Q2 free cash outflow of $70–$90M (semiannual ~$43M interest payment and working capital), ongoing Interiors drag until 737 MAX rates recover, and execution on H2 ramp and pricing tailwinds (FY25 gross price uplift ~$75M).
What Went Well and What Went Wrong
- What Went Well
- Aftermarket strength: commercial aftermarket +43% YoY (to $50.2M) and military aftermarket +11% (to $41.1M) boosted mix; CFO said aftermarket was 33% of revenue but 73% of profit in Q1.
- Debt reduction and ratings: $120M first-lien notes redeemed; quarter-end liquidity ~$203M and net debt ~$821M; Moody’s upgraded to B3 and S&P to B- with stable outlooks.
- New wins and extensions: extended F-35 sustainment support with Lockheed Martin (5 years) and won GE Aerospace F404 auxiliary gearbox award, reinforcing defense aftermarket and gearbox content.
- What Went Wrong
- Interiors drag: Interiors revenue fell to $29.0M with segment EBITDAP of $(7.3)M (–25.1% margin), hurt by reduced 737 MAX shipments and supplier input costs; management expects recovery as narrowbody rates ramp.
- Legal contingency and restructuring: Q1 GAAP included a $7.5M legal contingencies loss and $1.6M restructuring; together with $5.4M debt extinguishment loss, these drove the $(0.24) GAAP EPS (adjusted $(0.06)).
- Working capital/cash use: cash from operations was $(104.5)M and FCF was $(112.7)M in Q1; management guided Q2 free cash use of $70–$90M before H2 improvement.
Transcript
Operator (participant)
Good day, and Welcome to the Triumph Group First Quarter Fiscal Year 2025 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would like now to turn the conference over to Thomas Quigley, Vice President, Investor Relations, Mergers and Acquisitions, and Treasurer at Triumph. Please go ahead. Pardon me, everyone. We're having a technical issue. I will get the speakers ready in just one moment. Thank you for your patience. Ladies and gentlemen, thank you for your patience. Apologies for the technical issues.
I will now introduce Mr. Thomas Quigley to begin the call. Please go ahead.
Thomas Quigley (VP of Investor Relations, Mergers and Acquisitions, and Treasurer)
Thank you. Good morning, and Welcome to our First Quarter Fiscal 2025 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. As we review the financial results for the quarter, please refer to the presentation posted on our website this morning. We will discuss our adjusted results. Our adjustments and any reconciliation of non-GAAP financial measures to comparable GAAP measures are explained in the earnings press release and in the presentation. 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, achievements to be materially different from any expected future results, performance, or achievements expressed or implied in the forward-looking statements. Dan, i'll turn it over to you.
Dan Crowley (Chairman, President and CEO)
Thanks, Tom, and welcome to Triumph's first quarter fiscal 2025 call. I'm pleased to report that Triumph's off to a solid start to the year and expect continued improvement as we move through the course of the fiscal 2025 and into seasonally stronger quarters. Turning to page 3, I'll highlight key accomplishments from the quarter. We generated year-over-year sales growth of 7%, driven by strong aftermarket demand, offsetting a modest reduction in military OEM production demand. We expanded margins on price increases and favorable sales mix. We retired an additional $120 million of debt, strengthening our balance sheet. We were rewarded with recent credit rating upgrades from both Moody's and S&P. Turning to page four, you can see that aftermarket sales, including spares and repairs from our Systems & Support segment, is trending up in support of both commercial and military end markets.
Triumph aftermarket sales were up 27% year-over-year, as we benefit from a rising average fleet age, the need to fly older aircraft longer due to the shortage of new aircraft entering the fleet, and the emergent 787 landing gear overhaul cycle. As we mentioned last quarter, the 787 landing gear overhaul cycle is 12 years, and the oldest member of the fleet are hitting 12 years now, necessitating the removal and overhaul of all landing gear actuation, essentially all of which Triumph supplies. Our typical twin-aisle landing gear actuation overhaul price is between $185,000 and $400,000. The steady rise in spares and repairs on key platforms, including the Boeing 737 and Airbus A320 fleets and the Boeing 787 and Airbus A380 wide-body fleets, benefits our sales mix and financials.
Overall military segment revenues were stable to slightly down, supported by the strength of CH-53K sales, offset by V-22 and E-2D OEM declines, though mostly offset by aftermarket sales on these same platforms. Key wins for the quarter include contracts for the F/A-18E/F fuel pump overhaul, the T-7A gearbox, and the Kratos XQ-58 landing gear, which benefit three of our four Triumph operating companies, where we are positioned on key growth platforms. As discussed on our last earnings call, the inflationary impacts on our interiors business continue to be challenging, but largely in line with our expectations and reflective of broader industry trends, particularly a decline in narrow-body production rates and supply chain cost increases. We took actions in the quarter to rightsize the interiors business, consistent with the delayed MAX ramp, while we continue our commercial discussions with Boeing.
Triumph remains on track to achieve our overall annual net sales, adjusted EBITDA, and cash flow guidance. When adjusting for a legacy environmental legal contingency we recognized in the quarter, our operating income and EPS guidance also remain unchanged. Jim will provide more color on our outlook later in the call. I'm also pleased with our ability to execute our pivot to systems and IP-based aftermarket. This is the first quarter that Triumph has operated as a pure-play systems, IP-based, aftermarket, and interiors company, following the divestiture of our Product Support business. We have partnered with AAR on a seamless transition and identified areas to win together through AAR's distribution channels. As reported, the Product Support divestiture served as a catalyst to allow us to significantly and rapidly de-lever the business, strengthen our balance sheet, and meaningfully reduce our cash interest expense.
We remain well-positioned to capitalize on strong demand from the aftermarket in the short term and higher OEM build rates over the next 18 months. Triumph is ready for the expected A&D industry super cycle based on our diversification of customers and end markets as we gain share with new products, MRO services, and takeaways. Here's Jim to review our financial results.
Jim McCabe (SVP and CFO)
Thanks, Dan, and good morning, everyone. Q1 results exceeded our plan on all key financial metrics, and Triumph remains on track to achieve our full year objectives. Q1 was a good quarter for Triumph, with the strength of our proprietary aftermarket revenue and Systems and Support more than offsetting the temporary OEM rate deferrals and supply chain challenges. We continue to lower our debt and improve our credit, as evidenced by the ratings upgrades Triumph received from both S&P and Moody's in the quarter. Our consolidated first quarter results are on page five and show solid growth in revenue, operating income, and margins compared to last year. Revenue of $281 million was up $17 million or 7%. Adjusted operating income of $17 million was up $3 million or 23%.
Adjusted operating margin of 6% was up 80 basis points from about 5% last year, and $25 million of adjusted EBITDA represents a 9% adjusted EBITDA margin. Aftermarket revenue was 33% of total revenue, up from 27% of revenue in Q1 of last year. Our aftermarket revenue, while only a third of our revenue, delivers 37% of our profit in the quarter. Our growing installed base of proprietary products drives our aftermarket revenue and profit growth. We had three non-GAAP adjustments this quarter. A legal contingencies loss of $7.5 million related to a legacy environmental matter. Restructuring costs of $1.6 million, as we continue to reduce our fixed costs, and a debt extinguishment loss of $5.4 million from the debt repayment in the quarter.
Although not an adjustment, our Q1 legal costs to manage certain legacy loss contingencies were about $1.8 million higher than planned. Our Q1 commercial revenue is on page 6. Commercial aftermarket revenue was up $15 million or 43%, largely on legacy 737 spares and repairs. We also had an IP sale of about $5 million in the quarter, compared to $3 million in the prior year period. Commercial OEM revenue of $119 million was up slightly as 787 revenue increases more than offset revenue declines on Bell 429, Boeing 737, and other commercial platforms. Our Q1 military revenue is on page 7. Military aftermarket revenue of $41 million was up $4 million or 11% over Q1 last year, which was offset military OEM decline.
CH-53K continues to be an important military program for us in both OEM and aftermarket revenue. Cash flow is on page eight. For Q1, as expected, we built working capital and had free cash use of $113 million. This included $8 million of capital expenditures, up from $6 million last year. This cash use is driven by seasonally higher working capital, timing of OEM rate ramps, and supply chain shortages, all of which are expected to improve in the second half. The cash use in the quarter also included approximately $2 million of accelerated interest payments for the debt redemption, $1.6 million of cash restructuring costs, and about $5 million cash taxes related to the sale of Product Support in Q4 last year. On page nine is our net debt and liquidity.
During the quarter, we redeemed $120 million of the first lien notes, reducing them from $1.079 billion to $959 million. At the end of the quarter, net debt was $821 million, up from year-end as planned to support the seasonal working capital build. Liquidity totaled $203 million, including $153 million of cash, and is sufficient for our planned working capital needs. Our combined debt reduction across fiscal 2024 and 2025 year to date will yield $55 million of annual interest savings, and our remaining notes are not due until 2028. On page 10 is our FY 2025 revenue, EBITDA, and free cash flow guidance, which is unchanged from last quarter.
We continue to expect net sales of approximately $1.2 billion. We continue to expect approximately $182 million of EBITDA for a 15% EBITDA margin. For free cash flow, we continue to expect $10 million-$25 million of generation for FY 2025. Looking ahead to Q2, in addition to normal seasonality, we anticipate lower sales than last year in our Geared Solutions business, primarily as a result of LEAP order deferrals and supplier delays on the V-22 program. In the second half of the year, Gears expects increases on these programs, as well as the T-7A as it transitions from development to production and higher aftermarket sales.
Free cash use in the second quarter is expected to be in the range of $70 million-$90 million, driven by a $43 million interest payment, seasonality, and working capital timing due to OEM rate ramp. We forecast rapid working capital burn off in the second half of the year, consistent with our full year free cash flow guidance. In summary, first quarter results exceeded our plan and included revenue growth, operating income growth, and operating margin expansion over last year. We remain on track to achieve our full year financial objectives. Now I'll turn the call back to Dan. Dan?
Dan Crowley (Chairman, President and CEO)
Thanks, Jim. We just returned from the 2024 Farnborough International Air Show, and our positive outlook on the long-term demand was reinforced by the level of traffic there and OEM projections. The OEMs expressed optimism about planned increases in aircraft sales and production levels, which are expected to ramp through the end of the calendar 2024 and into 2025. The air show was a very productive event for Triumph. We conducted over 180 meetings and showcased our new proprietary products, such as engine actuation, cockpit indicator panels, and new cyber-protected digital avionics, which are at the heart of multiple product development efforts, from Engine Controls to displays. I'll touch on three takeaways from Farnborough. First, it's clear that our customers need Triumph. We are problem solvers and have innovative engineers.
We heard, "Keep doing what you're doing," and, "We'd like you to help us with here." You know, we solve our customers' hardest challenges. Second, while delays in commercial transport rate increases are impacting much of the industry, the OEMs are signaling increasing rates later this year, and Triumph will benefit from any increases given our conservative assumptions. Boeing and Airbus commercial transport backlog rose 25% since December of 2020. The airlines need these new aircraft. Meanwhile, the aftermarket, both spares and repairs, is growing and expected to remain strong through the end of the decade, according to leading aircraft lessors. And third, our alignment with our customers has never been better. Our customer collaboration is accelerating, as evidenced by customer-funded initiatives ranging from landing gear systems designs to additively manufactured gearboxes, thermal system solutions, and new actuator and engine control products.
Triumph continues to seek out and solve our customers' greatest challenges. Total backlog continues to rise, up 11% year-over-year to $1.9 billion, even as we push out some narrow-body orders. Backlog is stable sequentially as a result of delayed orders, which occurred in first quarter of fiscal 2024, but have not yet hit the FY 2025 order book. Commercial single-aisle backlog was flat as Airbus A320 Family increases were offset by declines in the 737 and A220. However, twin-aisle backlog is up 42% year-over-year, driven in particular by the 787 and 777 orders, spanning OEM and aftermarket. Triumph's growth in the commercial segment will accelerate as rate increases at Airbus and Boeing are realized in the near future. Turning to page 12, new wins for the quarter include an F/A-18 afterburner fuel pump MRO award.
We're also supporting the new GE Aerospace classified military engine test stand with multiple components. Additionally, GE Aerospace awarded us their T-7A F404 gearbox, and Kratos awarded Triumph a landing gear design and build program for the Kratos XQ-58 Valkyrie, a Collaborative Combat Aircraft variant. Turning to page 13, I want to acknowledge our now second-largest customer, GE Aerospace, and the breadth of our growing engagement with them. Over the last 4 years, our GE Aerospace revenues have grown at a 23% CAGR, nearly doubling. We have a strong portfolio of legacy products for GE Aerospace, including gearboxes, rotorcraft, fuel controls, fighter fuel pumps, and heat exchangers. But more importantly, we have a growing portfolio of new applications, which have led to the development of new products and entirely new product lines.
For example, on GE's new military engines, both adaptive cycle and a classified derivative engine, Triumph has 10x the content on these new engines versus prior GE military engines, which will be tailwinds as these engines transition to production. GE recognized Triumph as both a valued partner and a problem solver. We are positioned to grow alongside them in the years to come. On the emerging electric vehicle market, we've had several wins in the quarter, including a thermal package on the Deutsche Aircraft D328eco, and a funded preliminary design effort for a tier-one electric regional jet gearbox. We continue to track commercial transport segment performance, including aircraft orders and backlog, while new aircraft orders year to date are lagging prior year.
Total aircraft order backlog stands at more than 15,000, up 25% from 2020, and represents 12 years of production backlog at current rates, underpinning the rising pressure for further production rate increases. I look forward to working with both the new Boeing commercial CEO, Stephanie Pope, and Boeing CEO, Kelly Ortberg, who I know from my past industry roles. Triumph is fully supporting Boeing's quality and safety management system initiatives, and is closely monitoring their supplier portal for aircraft rate changes. On the development front, we're very encouraged that Boeing's 777X program is moving forward to the formal stage of flight testing with the FAA. Triumph has over 700,000 content on this new advanced aircraft, which I saw in number during my recent visit to Boeing's final assembly plant.
With a backlog of over 500 aircraft prior to certification, this is expected to be a very successful program. Before I wrap up, I want to update you on a post-quarter close cyber event. On July twenty-seventh, we identified a cybersecurity incident involving unauthorized access to certain of our IT systems. The company immediately took steps designed to contain the incident and activated our incident response plan to support continued operations. Consistent with the responses of other firms, we also notified appropriate law enforcement authorities and continue to work closely with cybersecurity experts and legal counsel to protect the company's interests and our customers. We've substantially restored the affected systems and resumed normal operations. We believe that the security incident has not had, and is not reasonably likely to have, a material impact on the company's financial results.
In summary, we're off to a solid start for the year, and Q1 puts us on track to achieve our fiscal 2025 objectives. The path to our year-end guidance is expected to be nonlinear, but the improvement in customer demand in the second half of the year gives us confidence in our outlook. Aftermarket sales continue to power the company through the near-term OEM headwinds. We expect to expand margins and improve cash quarter over quarter as we further realize benefits from our improved business profile and initiatives. The encouraging long-term outlook for our industry, our unique and focused markets position, and commitment to performance has us well positioned for continued success.
My team and I are closely aligned with our customers as we work through the near-term issues facing full recovery of OEM demand, and we're excited about our new products on future aircraft and engines that will enhance our long-term value creation. Triumph will continue to hustle while we wait for the follow-through on customer demand, while strengthening our balance sheet, streamlining our business, and investing in our product portfolio to enhance our shareholder value. We're happy to answer any questions that you've got at this time.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Peter Arment of Baird. Please go ahead.
Peter Arment (Senior Research Analyst)
Yeah, good morning, Dan. Good morning, Dan, Jim, Tom.
Dan Crowley (Chairman, President and CEO)
Good morning.
Peter Arment (Senior Research Analyst)
Hey, Dan, can you, you know, maybe walk us through, you know, you've got, you're gonna have, like, a heavy usage of free cash flow in the first half, but you're expected obviously turn positive. You know, what are the kind of programs that you can kind of point to? Is it the 787 work? Obviously, the aftermarket's powering the company that kind of gives you that positive swing in the back half of the year. And what rate do you expect to kind of be at on the 737 MAX? I know that's critical for your interiors profitability.
Dan Crowley (Chairman, President and CEO)
Yeah. First of all, when I look at the business, I look at it through this lens of the operating companies, and we have strong performance out of our actuation business. It's hitting its marks as well as engine controls. And so, you know, they're performing independent of the MAX. You know, we're seeing strong sales growth out of that as well. Our geared solutions business is down slightly, and we know why that is. It's predominantly the LEAP program as well as the wrap-up on the Bell 429. They have new programs that are transitioning into production in the second half of the year that'll benefit them, like the T-7A. Interiors is definitely down.
You know, they're producing it on the order of 12-14 a month now on the MAX because we delivered a lot of inventory. It's physically a large product to store. As that rate comes back at the end of our fiscal year, what I predict it'd be Q4, we're gonna see that business have an upswing in volume. And, you know, overall, it's really the mix of MRO, military, and commercial all coming back strong in the second half of the year that contribute to that. Jim?
Jim McCabe (SVP and CFO)
Yeah, it's a diversified working capital challenge, and it's across multiple programs, not just the big Boeing programs, but LEAP, gearboxes, and V-22, where we have some supply chain challenges are all contributing to the temporary working capital surge. But we see a line of sight to, for all those to liquidate in the second half of the year.
Peter Arment (Senior Research Analyst)
Okay. And then just as a clarification, Jim, you mentioned, I think, an interest cost payment in the second quarter. It seemed larger than, you know, what the run rate is. Or could you maybe just walk us through a little bit because you did pay down the debt and, you know, kind of the interest rate in the quarter interest cost was, you know, kind of trending below your guidance for the year. So maybe you could just update us there.
Jim McCabe (SVP and CFO)
Sure, Peter. It's a semiannual interest payment, September 15th. It's about $43 million. And that's just on the remaining bonds that are outstanding. There's $959 million that are out there. I'm sorry, could you reask the second part of your question?
Peter Arment (Senior Research Analyst)
Yeah, just say, so that in that guidance of $95 million-$90 million on cash interest still holds with that number?
Jim McCabe (SVP and CFO)
Yeah, absolutely. That's correct.
Peter Arment (Senior Research Analyst)
Thanks. Thanks, guys.
Dan Crowley (Chairman, President and CEO)
Thank you, Peter.
Operator (participant)
The next question comes from David Strauss of Barclays. Please go ahead. I think that's Barclays.
David Strauss (Managing Director in Equity Research)
Yes, correct. Thanks. Good morning. Follow-up question on interiors. What kind of volume do you need on the MAX to get to, you know, positive EBITDA in interiors, and when would you expect to get there this year?
Dan Crowley (Chairman, President and CEO)
Sure. Thanks. Interiors is... Let me first break down that Interiors is three different businesses. Insulation is the largest, followed by cabin composites, and then cabin components. Insulation, we assume to build rate this year of 160 ship sets, so you can do the math, you know, it's 12, 13, and the portals is at that same kind of rate. Composites, we're producing at a higher volume, closer to 30 a month, because composite is, you know, these smaller products that can be packaged and nested, and we didn't really build ahead on, on composites. Plus, we're back stopping a number of suppliers that aren't performing on that. So some of that work is dual sourced, and then cabin components follows composites.
So the real challenge is getting installation rates back up, and we've been profitable at this—in this business at rates that are on the order of 30 a month. So to go from, call it 13 a month to 30, you know, we'll cross that threshold, and if Boeing can get to 40, as they've advertised next year, it will be solidly profitable. But we're not just relying on the rates. All right? We've taken advantage of this bathtub in production to take out significant costs. The operations are performing well, independent of the rate. They're 99% on-time delivery and similar quality. We're moving some work between the two plants in Mexicali, Zacatecas. We've hosted Boeing on-site teams who are, you know, very impressed with what we're doing.
We're picking up 787 work from competitors, so we're using the time to improve the performance of the business, and it looks like the peso is turning in our direction. It was really impactful to us last year. We still have work to do on supplier input costs. That's been a big driver for that business, but we're gonna deal with that head on.
David Strauss (Managing Director in Equity Research)
Okay. I guess, do you assume positive EBITDA for the, you know, within the $182 million EBITDA guidance for the year? Are you assuming that Interiors is positive for the full year?
Dan Crowley (Chairman, President and CEO)
It's a modest contributor at this point, and still, again, about 10% of sales, so it's not a big swinger on Triumph's full results.
David Strauss (Managing Director in Equity Research)
Okay. And then, Jim, I guess another follow-up on the prior question. On interest expense, just the, you know, the income statement amount, I think the quarter was $19 million, you've now reduced, you know, your debt balance. How do we get to $95 million for the full year?
Jim McCabe (SVP and CFO)
Yes. There's a little bit of favorable FX that runs through that line as well. But the interest expense itself on a cash basis is just the $959 million at 9%.
David Strauss (Managing Director in Equity Research)
Okay. Thank you very much.
Dan Crowley (Chairman, President and CEO)
Thank you.
Operator (participant)
The next question comes from Michael Ciarmolli from Truist Securities. Please go ahead.
Michael Ciarmoli (Managing Director and Senior Equity Research Analyst)
Hey, morning, guys. Thanks for taking the questions.
Dan Crowley (Chairman, President and CEO)
Morning.
Michael Ciarmoli (Managing Director and Senior Equity Research Analyst)
You know, Dan, I, I think you, I think you said, you know, you guys exceeded the plan on all metrics. I mean, was that - was the $7 million loss in interiors part of the plan? I mean, it seemed like that would have been worse. And then what, what's... I mean, how do we - the confidence level, I guess, in the second half here, I mean, what - do you really, is this solely dependent on the MAX ramping and this kind of chatter or reports the past, you know, 24-48 hours of them redesigning that door plug? You know, is there any risk to ramping up that production that you guys see? And kind of just trying to get a sense of the confidence level in this back half of the year here.
Dan Crowley (Chairman, President and CEO)
Yeah. First of all, thanks, Michael. When I say we exceeded the plan, it was on a consolidated basis, which speaks to the strength of our systems and support business. Particularly, Actuation had a very good Q1, and they offset the softness in Interiors, which was below plan, to your point. As far as the MAX rates, yeah, we're counting on rates to come back at the back end of the year. If they materially don't, you know, that, then we'll come back and we'll update investors. But we've done such amount of work on diversification, it's still, that single program is only about 12% of our revenue. So should they, the rate remain flat for longer than we'd like, then the impact is not going to be huge.
As far as the door plug, listen, Boeing, Boeing is doing the right thing on this. I, I've been tracking this as an insider on all their quality calls. You know, certainly it was a disappointment. You know, they came clean on the handoff issues they had related to the, you know, faster installation. You know, I was one of the first people to, to ask, you know, "Hey, why can't this door plug be designed such that it's retained under flight pressures and doesn't require fasteners? They're only there as a secondary backup." And when I, you know, told that to the senior Boeing leaders, they said, "That's already in our pipeline to do that." And this was two months ago.
So it's something they've been. It's not something that may have just come out publicly the last day or two, but it's something that Boeing is already ahead of the game on. So I'm confident they'll get it fixed. You know, it's a disappointment. It did impact a lot of us in the supply chain, but it will get fixed. And based on what I'm seeing within Boeing and all the work that they've done, I attended their supplier conference in Q1. They're fully committed to improving their performance and not stepping up the rate until the metrics justify doing so.
Michael Ciarmoli (Managing Director and Senior Equity Research Analyst)
Got it. Perfect. And then just, Dan, I think you called out that XQ-58 landing gear award. Can you? Is that a sizable or material win for you guys? You know, any color on that? I know there's a lot of movement with these collaborative combat kind of aircraft and plans.
Dan Crowley (Chairman, President and CEO)
I don't think it's going to be a huge contract. You know, the thing about our landing gear business is, we go in and help primes, OEMs, that don't have any expertise, but you know, they may attempt to do the landing gear on their own, and then they look at crash survivability, the ability to operate in off-nominal conditions, you know, heavy landings, you know, crosswinds, and suddenly it's not so easy. And so we have a team in Seattle that designs these full test rigs. I was just up there looking at the landing gear that they've designed for the Beta eVTOL aircraft, and they were running deployment tests on that. It's a very slick design, a very low cost, low weight, given that's important on eVTOL.
On the XQ-58, we met with Eric and his team at the air show. Very good meeting. They know what they're good at, we know what we're good at, and they're glad to have us as a partner. You're going to see us do that on other aircraft up to a certain weight class. You know, the large landing gear, we're not really in that space, but these, you know, small to medium class aircraft, we're becoming a strong leader in.
Michael Ciarmoli (Managing Director and Senior Equity Research Analyst)
Got it. Perfect. Thanks, guys. I'll jump back in the queue.
Dan Crowley (Chairman, President and CEO)
Yeah. Thanks, Michael.
Operator (participant)
The next question comes from Miles Walton of Wolfe Research. Please go ahead.
Miles Walton (Managing Director in Aerospace and Defense Equity Research)
Thanks, good morning. Jim, I think 2Q was looked at as a neutral from a free cash flow perspective, and now $70-$90, and obviously was burning hotter in the first quarter. Can you point to specifically why that deterioration, and I guess why the confidence that you'll still recover to the same point by the end of the year?
Jim McCabe (SVP and CFO)
Sure. Yeah, I know that the consensus out there was around zero. We had a little bit of cash usage in our AOP, and unfortunately, it's grown because of the rates. The timing of the rate ramp essentially is one driver. Supply chain challenges on certain military programs are another driver. The LEAP schedule for deliveries is another driver. Those are three of the big ones. You know, we're continuing to support our customers to make sure we have the inventory available. As we've said before, we have longer lead times than the frozen window for customer order changes. So that inventory will get used. We see a lot of that liquidating in the second half of the year.
It's a diversified mix of programs that are impacted, which means that we have high confidence that a lot of those will liquidate, and a few of them don't. It's not gonna be deadly to the overall forecast. So it's really working capital-driven. It's timing, but it's the right thing to do to support our customers. And remember, 73% of our profit in Q1 was aftermarket, so it's really about the aftermarket. Even though it's a third of sales, that's gonna continue to drive the cash flow and profitability. It has near-term opportunities we're gonna seize on, and we're continuing to build the longer-term OEM deliveries that feed things like the 787 landing gear overhaul. It may be, you know, 12 years later, but all these programs are gonna pay off in the aftermarket in addition to the OEM contribution, which is less in the aftermarket.
Miles Walton (Managing Director in Aerospace and Defense Equity Research)
Okay. Yeah, I think consensus is neutral, 'cause I, I thought on the last call, you pointed to neutral in the second quarter, followed by generation in the third and fourth, but maybe, maybe there was something that was lost.
Jim McCabe (SVP and CFO)
Yeah, probably I said in the range of. So our planning was just a modest use in Q2 originally.
Miles Walton (Managing Director in Aerospace and Defense Equity Research)
Mm-hmm.
Jim McCabe (SVP and CFO)
It really is-
Dan Crowley (Chairman, President and CEO)
Yeah, it really is, it really is just a timing issue. It's not as if we bought the wrong parts and misjudged the market. You know, we typically order these long lead parts 6-12 months in advance of need. So if, if Boeing changes their demand, which they have the right to do inside lead time, then you can get some overshoot on working capital, and that's what we're seeing in Q2.
Miles Walton (Managing Director in Aerospace and Defense Equity Research)
Okay. Dan, you've gone through, and Jim, you've gone through this long simplification process through divestitures, and you're still sort of struggling to generate material for cash flow. Is it questioning for you whether you have to do more from a portfolio perspective, or is there a point where you think about strategic alternatives to the whole for the benefit of the company or shareholders?
Dan Crowley (Chairman, President and CEO)
Fair question, Miles, and it's something every quarter we meet with the board and we look at all options that are available to the company, so it's not a new topic. In fact, I have a chart that I use with the board that goes back to when we first started looking at each opco as well as the overall company. So we're always open to different outcomes that would enhance shareholder value. But we do feel that what we've consolidated the company down to, through consolidations and divestitures, is the right asset base. You know, certainly interiors is one we're gonna continue to look at, but we need to restore the rates on that. We've got some pricing negotiations that are still pending with our customers.
But I like the business that we have, actuation, engine controls, gearboxes, and interiors under the right conditions of volume. And, you know, we'd like to get our leverage down. We reduced it from 10x to, I think, 4.9 with the TPS divestiture. This year, we're on path to reduce it to 3.5. We have a line of sight over our planning horizon to get it down to 2, and then we can start thinking differently. But right now, you know, we're comfortable with our balance sheet structure, and we don't see a need to do any major divestitures to maintain our leverage and cash flow.
Miles Walton (Managing Director in Aerospace and Defense Equity Research)
Okay. All right, thank you.
Dan Crowley (Chairman, President and CEO)
Sure.
Operator (participant)
The next question comes from Seth Siefman of J.P. Morgan. Please go ahead.
Speaker 12
Good morning, this is Rocco on for Seth.
Dan Crowley (Chairman, President and CEO)
Morning.
Speaker 12
Have you begun to see any destocking of Triumph work at Boeing, and how is the Airbus rate ramp delay impacting Triumph?
Dan Crowley (Chairman, President and CEO)
I'm gonna - I want to play that back. Have we started to see destocking from Boeing?
Speaker 12
Uh, yes.
Dan Crowley (Chairman, President and CEO)
So, we did lower our backlog consistent with the pushout of MAX orders in the quarter, even though backlog was still up, I think, 8%, in aggregate, despite that. Boeing is... You know, we looked at their delivery, and they're starting—they're getting close to shipping their finished goods aircraft. That's coming down in, you know, pretty steady fashion. So this will pivot from, you know, I call it depressed build rates to higher build rates, you know, over the next year. But we did take action on the backlog and expect that to reverse. Did that address your question or did I miss it?
Speaker 12
Yes. And just the Airbus rate ramp delay, is that impacting Triumph?
Dan Crowley (Chairman, President and CEO)
So modestly. You know, it's such a robust rate, you know, already. You know, we would have liked to seen it head north. In our fiscal 2025, you know, we're building, like, on the A320 family about, you know, 50 a month, and we were, you know, headed to 60 next year and then into the 70s thereafter. And so it's really just a question of the profile to get there. So it's one of our top, you know, three or four programs, but it's a steady enough build rate that we're meeting all of our, I'll call it, you know, economic production quantity thresholds, and we're able to support them in the aftermarket as well, as Jim mentioned. So, you know, yes, it's impacting them. I know they've talked about it, because they've set a very high bar for their output because of the huge backlog of orders. But, from a supplier point of view, it's not impacting us.
Speaker 12
Great. Thank you.
Dan Crowley (Chairman, President and CEO)
Yeah.
Speaker 12
Are you concerned by the grounding of the V-22 following the accident a few months ago? And should that weigh on defense results for the year?
Dan Crowley (Chairman, President and CEO)
The V-22 crash that happened was unrelated to the hardware that Triumph supplies. It was an engine-related defect. It's been publicly reported, not the pylon conversion actuators that we supply. However, when they, you know, limit the use of the aircraft or pause its use, it does have an impact on OEM deliveries, and to some extent, aftermarket, and that was part of the softness that Jim reported in our military business. Now, longer term, the V-22 is gonna be in operation for decades. You know, the Valor, the V-280, that, you know, is coming up behind it and other platforms are a long way from fielding. So, you know, we expect the demand for those actuators to continue, and we're confident in the quality of the hardware we're shipping.
Speaker 12
Great, thank you.
Dan Crowley (Chairman, President and CEO)
You bet.
Operator (participant)
The next question comes from Ron Epstein of Bank of America. Please go ahead.
Ron Epstein (Senior Equity Analyst)
Yeah. Hey, guys. Can you hear me okay?
Dan Crowley (Chairman, President and CEO)
Yeah.
Speaker 12
Yes.
Dan Crowley (Chairman, President and CEO)
Hey, Ron.
Ron Epstein (Senior Equity Analyst)
Hey, good morning. What are you guys factoring into your outlook for the possibility of a strike? I mean, it seems like a pretty high probability. The question is just, how long is the strike? How are you thinking about that, and how is that kind of factored into your outlook?
Dan Crowley (Chairman, President and CEO)
So when we adopted our build rate for the year, we call it Pass Three of our annual operating plan, we assumed, you know, demand on the order of 30 a month for most of our factories, as I mentioned. And so we're pretty derated already, and that's an average over the course of the year, you know, 360 ship sets. If they have a dip that goes down associated with any strike, and I don't have any intel that says they'll have one, we'll likely just build to inventory and not adjust our build rates. You know, Boeing has been a responsible prime in allowing the supply chain to continue to build at economic rates where they can. I mean, there's a limit, obviously.
But, you know, I'm sure you've asked Brian West, you know, "Am I investing in supplier protecting suppliers?" And he'd say, "Yeah, I've got, you know, billions of dollars of inventory to prove it." So I expect them to continue that behavior as opposed to, "Hey, everybody, stop production, we're on a strike." Now, if it were to be protracted, yeah, you know, the rates might be adjusted, but, you know, I'll know more about that in the coming, you know, we all will, in the coming, you know, days and weeks. And we have contingency plans operationally, that if should it happen, and they send signals in the portal to reduce the rate, we know how to destaff, we know how to furlough people, reduce overtime, and put notice out to our suppliers. So the mechanisms are in place, but I don't think we're gonna end up having to do it.
Ron Epstein (Senior Equity Analyst)
Got it. Got it. And then can you speak to, a little bit, you mentioned it, in some of your slides, the electric aircraft gearbox development, you know, what are you doing there, and who's it for, and so on and so forth?
Dan Crowley (Chairman, President and CEO)
Yeah. Well, in preparing for our remarks today, I wanted to talk about the name of the prime because it's a prime you would know. They didn't want us to mention it, but let me just describe, you know, the application. So, you know, today, a lot of regional jets are turboprops, and they have gearboxes that connect, you know, let's say a Pratt & Whitney, you know, PT6 engine to the propeller, and these gearboxes don't go away when you adopt electrification. In fact, they become the critical link between the electric motors, which spin at a very high rate, and the prop, which spins at a lower rate. So the gearboxes step down that rotational speed, whether it's a prop or it's a helicopter rotor.
Now, the design of it's different because you're not getting a single shaft input from a turbine motor. You're getting input from maybe four parallel electric motors. And what they're trying to do, the prime's trying to do, is to build a clean sheet aircraft that takes advantage of this new architecture while still maintaining, I'll call it, an airframe that looks similar, but underneath the skin, it's got a place for the batteries to reside. It's got our gearboxes. It's got these new electric motors. It's got new engine controls, because you don't need to worry about fuel pressure. It's got more electric actuation, so you don't need a hydraulic system. Since you don't have a traditional engine, you don't have an AMAD that's providing an accessory engine gearbox that drives things like hydraulic pumps.
So all those subsystem architectures are changed, and they have funded us to lead the design of that gearbox. So look for Triumph to continue to support those kind of applications, even as aircraft electrification advances.
Ron Epstein (Senior Equity Analyst)
Then maybe one more on the landing gear system for Kratos. How much new design landing gear has Triumph actually done?
Dan Crowley (Chairman, President and CEO)
Well, by platform, quite a bit. You know, I mentioned the Beta eVTOL. We also did the Cirrus business jet aircraft. We did the Dream Chaser nose wheel gearing, which looks more like, you know, space shuttle. It's got heat shields on it. And then we've done now this XQ-58, and we support some of the small military aircraft. We're involved in some of the classified work that I can't discuss. So I'd say it's a very broad set of applications, not particularly on large programs in terms of production volume, but a very good mix of platforms, and that's our niche. You know, there are other people that have the high volume, you know, large aircraft, but they're also, they've been negotiated down on price over multiple rounds, whereas we tend to do pretty well on these shorter-run applications.
Jim McCabe (SVP and CFO)
Got it. All right. Thank you.
Dan Crowley (Chairman, President and CEO)
You bet.
Operator (participant)
Our next question comes from Cai von Rumohr, from TD Cowen. Please go ahead.
Cai von Rumohr (Managing Director)
Yes, thanks so much, and good quarter.
Dan Crowley (Chairman, President and CEO)
Thanks.
Cai von Rumohr (Managing Director)
So, two-part question on Boeing rates. 787, where are you now, and where do you expect to go, and when? And secondly, when does the MAX go up? Because if you do 160 shipsets, essentially, that looks like you're running 12-14 for the entire year.
Dan Crowley (Chairman, President and CEO)
Okay, I'll start with 787. So we adopted as an assumption that is between 53 and 63 shipsets this year. So if you, you know, divide that by 12, you get the, you know, 4.5 to five a month. It depends on the factory, and I, I don't mean to make this complicated, Cai, it just, it really is a function of buffer stock inventory-
Cai von Rumohr (Managing Director)
Right
Dan Crowley (Chairman, President and CEO)
In terms of what we ship. The portal demands that are in the system from Boeing for us are higher. They are between 5 and 8 per month, with our Clemmons site that builds, actuation, landing gear, actuation components, at that higher rate. So it's a little bit of a head scratcher, you know, in terms of why are some factories lower than others. But, we're pleased that the 787 actual demand is coming out higher than what we adopted for the basis of our AOP, and that's part of why Jim was able to reference higher commercial OEM volume in the quarter is because 787 is pretty strong.
Now, looking ahead, what we look to happen on the 787 is that in our fiscal 2026, we forecast that to get up to maybe 8 a month universally across all the factories, not just Clemmons, but Yakima and Interiors as well, because Interiors is a big 787 provider. They're building, Interiors is building at about 4.5 per month today, and what we're seeing in the portal for Interiors is about 6 a month. So sorry to be complicated in my response, but it does vary by plant. You asked... The first question was about 737?
Cai von Rumohr (Managing Director)
Right. Because the 160 basically looks like you run the whole year at about 12-14. So when does that go up, and what does it go to?
Dan Crowley (Chairman, President and CEO)
So I really have to defer to Boeing in terms of the shape of their ramp. You know, we have our own internal forecast by month. I'm looking at it, you know, right here, Cai. I mean, the. We can see step-ups happening in, you know, September and then November, and sort of leveling out at, you know, 38 in our Q4, which is out, you know, in January to March. So it's a pretty. It's a. We've modeled a 2-3-step increase between now and then. Boeing does like to keep their steps constant for a period of time. They don't want to step monthly. They like to step in six-month increments, but I'll defer to them on the actual shape of the ramp.
Cai von Rumohr (Managing Director)
Terrific. And just one for you, Jim. Pension contribution, I didn't see any in the first quarter. I believe, you know, in your initial guide, you had something like $23 million. How much is that contribution expected to be, and when will it hit?
Jim McCabe (SVP and CFO)
So, Cai, it's spread out throughout the year. There was none in the first quarter. There's four-
Cai von Rumohr (Managing Director)
Mm-hmm
Jim McCabe (SVP and CFO)
four payments throughout the year, so they'll be spread over the balance of the year. I don't have the exact timing, but I think you can look at it being spread pretty evenly over the balance of the year.
Cai von Rumohr (Managing Director)
Excellent. Thanks so much.
Jim McCabe (SVP and CFO)
You bet.
Operator (participant)
The next question comes from Sheila Kahyaoglu of Jefferies. Please go ahead.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Good morning, Dan and Jim. Thanks so much. So first question for you, maybe on systems and support. If we exclude that IP sale, it looks like margins were 14.5%, about flat year-over-year. But we're modeling about 500 basis points of acceleration as we exit the year, so just gradually ramping. How do we get comfortable with the systems and support margin outlook?
Jim McCabe (SVP and CFO)
Yeah, the IP sale of $5 million this quarter compares to $3 million that was in the prior year quarter.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Right.
Jim McCabe (SVP and CFO)
So it's just a little bit more than we've had previously. I think the margins are still up, even if you took those out, but the fact is those are normal course for us now. We're continuing to improve our older programs that others have seen more value in than we do in running them out, and that helps provide some cash. But aftermarket support outperformed as planned in the first quarter. It continues to outperform. The aftermarket's very strong there. Could you repeat the second part of your question? Were you looking where it was going for the full year?
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
So, I was more talking about the absolute margin of, like, 14.5%. As we think about exiting the year, we get to about 19%. So how do margins improve so much as we exit the year?
Jim McCabe (SVP and CFO)
Yeah. So it's volume driven. Remember that this year we have a couple things going on. We've got price coming in, so we've got $75 million of price, and we've got volume increasing. So in systems and support, as I look at my volume over the course of the year, despite the second quarter challenges for gear that I spoke about, there's significant increases in Q3 and Q4. So it's volume driven, there's some price. Remember, we took $40 million of annualized cost out as well across the company, so we're gonna see benefits from that too. So the three of those are what's contributing towards the rate that you said, which is very much in the reasonable range for the full year.
Dan Crowley (Chairman, President and CEO)
Sheila, you remember that old saying about, you know, forecasting is difficult, particularly about the future. You know, last year, we slowed down our rate on GE LEAP in the second quarter, and then they called us and said, "Forget that, you know, throttles forward. We need, you know, more shipment out of you." We almost recovered to the full original AOP by the end of the year. And we may see that this year, depending on how things progress, but they did notify us of fewer demand for the gearboxes that we produce for them, and, you know, we adjust our outlook accordingly. I would say stay tuned through Q2, Q3, and we may, in fact, see the pendulum swing back to producing at higher rates for the narrow body. We're not counting on that, that's not in our forecast, but we'll be prepared for it. And we have the inventory to do it.
Jim McCabe (SVP and CFO)
I think if you looked at prior years, look at the trends on the margins prior year. It's very consistent that we'll be achieving what we're forecasting for this year.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
And maybe on free cash flow, what's sort of the re-rate assumption you have baked in to get to cash positive in the second half in Q3 and Q4?
Jim McCabe (SVP and CFO)
Yeah. So as we said, in Q2, we're 70-90 use. We'll be positive in Q3, and then we'll be very positive in Q4. Again, similar to prior seasonality that we've seen in prior years.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Okay. And last question. On the aftermarket demand, MRO, except IP sale, MRO was up 37%, so, you know, double that appears. So what's kind of driving that, and how do we think about full year aftermarket growth?
Dan Crowley (Chairman, President and CEO)
So aftermarket is, it's a reflection of legacy fleets operating longer because of, you know, demand. I mean, you fly a lot. TSA just hit their highest post-COVID throughput, 3 million, a couple of weeks ago. They need these jets. I mean, I've been flying on wide bodies lately for domestic routes that I never expected to, but I really like it. And we are seeing it strong on military platforms as well in support of readiness. We had some FMS spares come through in the quarter. We're seeing Army engine control replenishment orders come through. Actuation, as I mentioned, had strong aftermarket, so it's not been a single opco or site that saw the aftermarket demand. It's been pretty broad-based.
You know, I was also asked, do we see this running out in a year or two's time? Now, I'm starting to think it's gonna be through, running through the decade. I don't think we're gonna see between the military conflicts that are happening and the delay in ramp versus the backlog of aircraft orders, I don't see aftermarket trending down now for several years. So it's gonna be a good tailwind for us. And I mentioned AAR, but we also use VSE and Triman as distribution partners, and they're doing a very good job finding spares and repair opportunities for us, so we're not doing this by ourselves.
Sheila Kahyaoglu (Aerospace and Defense and Airlines Equity Research)
Great. Thank you.
Jim McCabe (SVP and CFO)
Thank you.
Operator (participant)
The next question comes from Noah Poponak of Goldman Sachs. Please go ahead.
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Hey, good morning, everyone.
Jim McCabe (SVP and CFO)
Good morning.
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Jim, you just alluded to the free cash flow seasonality being similar to the past, but with the 1, 2 actual and what you just guided 2 for 2Q, the use in the first half would be about twice the size of the last 2 years when you had negative full year, and the positive in the back half would need to be much larger to get to the full year. So directionally, it looks similar, but the order of magnitude is much different. And I guess it sounds like you're pointing to working capital and the volatility from Boeing, but you've got a revenue plan for the year of kind of flat organically. You're up a little in the quarter. You're saying aerospace OE revenue is up a little in the quarter, defense is kind of flat, aftermarket is really good....
You've talked about, and others have, Boeing kind of pulling at the higher rates they plan to get to from the supply chain, not really changing that. So I guess, you know, with all of that, it's kind of like everything I know, except for your final answer on cash flow, would make me think that your cash flow did not have, you know, a massive use of working capital and burn in the first half and a much different profile than the past two years, yet it does. What am I missing? What's the missing piece there? I mean, did you just ship a lot more on the front end than others in the industry? Or is there something different contractually between you versus others in the industry? I'm struggling to understand that much different shape of cash flow compared to revenue.
Jim McCabe (SVP and CFO)
Yeah. So, there's no simple answer because there's a lot of programs we're talking about. We did use more cash this year than last year. I think what you saw was a lot of customers giving us early payments and advances in Q4 this year, more so than they did a year ago. So we had some of that kind of reverse itself in Q1. Q2 is really a story of increasing working capital, because we can't ship everything, because the ramps are delayed, because we have some supply chain challenges, and that's gonna ship out in the second half of the year. So there is higher cash in the second half of the year in the continuing business than last year. Remember, you got to look at last year, ex the Product Support business.
Q4 conservatively is when most of the working capital reduction is, but there's a portion in Q3 as well. So you're right that it's a little more exaggerated than it was in prior years, but it's the same profile. Magnitude's just a little higher in the second half.
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Okay. Can you quantify what you're assuming now for working capital use in the first half and what you're assuming for positive working capital in the second half, roughly?
Jim McCabe (SVP and CFO)
I don't have the working capital line itself to talk about. I just have the total cash flow. But as we used $113 million in Q1, we're saying we could use in the range of $70 million-$90 million in Q2. You're gonna see significant generation in Q3, but the majority of the generation in the second half will be in Q4.
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Okay. The six points of price that you've talked about, how did that look in the first quarter?
Jim McCabe (SVP and CFO)
We benefited from it. Again, I don't have the exact amount of price that hit Q1. Remember, it's not just price, it's cost out as well. But $75 million of price planned in the year, 65 was already under contract, so you can assume roughly a quarter of that 65. And but then I would derate it for the sales as a percentage of the full year.
Dan Crowley (Chairman, President and CEO)
Yeah, we continue to see strength in pricing, because of the supply chain constraints and people still investing in, sources to make sure they can support, a ramp when it comes. Or military, as I look at our last 10, price ups, more than half are military related. So we're getting quite a bit-
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Okay
Dan Crowley (Chairman, President and CEO)
of price on that side as well. That helps us. And remember, we negotiated a lot of these things back in 2022, and they're just now dropping in here because we typically negotiate them outside lead time, and most of these are our IP. There's a few that are, we're sole source build-to-print, but it's so hard to switch. Give an example, on the Apache, we do gearboxes, and we replaced a near-bankrupt supplier on that, and it was a very painful transition. We did it. We're performing reliably now, and we've gotten price on it since because they don't want to go through that again. So I think we'll see-
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Okay
Dan Crowley (Chairman, President and CEO)
Prices continue to be a tailwind. We're not done. These LTAs keep renewing on an annual, you know, basis. And, you know, this is also part of why we're doing the new product development, so that we can claim more value. And we may ultimately have better margins at a lower delivered cost because we've redesigned a product in a way, it's got fewer parts and lighter weight, but it's got higher performance for our customer. I'll give you an example. We just we're partnering with several primes on the vapor cycle cooling, which has been a big part of our renovation of the West Hartford plant. And customers are very excited about us supporting their replacement of legacy cooling systems on the aircraft, and we'll have strong margins on that work. It's an investment we made in years past that will pay off in the future.
Noah Poponak (Aerospace and Defense Equity Research Analyst)
Okay, thanks. Thanks for the detail.
Dan Crowley (Chairman, President and CEO)
Hey. Yeah. Thanks, Noah.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.