Triumph Group - Q3 2022

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group conference call to discuss our Q3 fiscal year 2022 results. 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're having trouble viewing the slide presentation.

You're currently in a listen only mode. There will be a question and answer session following the introductory by management. On behalf of the company, I would now like to read the filing statement. There are certain statements on this call constitute forward looking statements within the meaning

Speaker 1

of Private Securities Litigation Reform Act of 1995. These forward looking

Speaker 0

statements involve known and and 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 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.triumphgroup.com. In addition, please note this call is the property of Triumph Group Inc. And may be recorded, transcribed or rebroadcast without explicit written approval.

At this time, I would like to introduce Daniel J. Crowley, The company's Chairman and Chief Executive Officer and James F. McKim, Jr, Senior Vice President and Chief Financial Officer of Triumph Group, Inc. Go ahead, Mr. Crowley.

Speaker 2

Thank you, Tom, and welcome, everyone, to Triumph's Q3 earnings call. It's encouraging to See COVID cases coming down with borders reopening, including most recently Australia, signaling an improving outlook for our industry. Earlier today, we reported our Q3 results for fiscal year 2022. Triumph generated positive free cash flow and improving margins in our core systems and support segment. Our team continues to deliver against our strategic plan in a challenging environment.

Triumph is emerging as a new company. We are meeting the targets laid out in our transformation plan. We're a company focused on meeting our full year objectives organic growth as a leading pure play systems and aftermarket company. We recently exited the last of our 7 40 7 production facilities and announced the sale of our Stewart, Florida Aerostructures business. Stewart is the last Large structures facility in our portfolio and the exit is a major milestone for Triumph.

And our focus on winning is paying off. In the fiscal year to date, we've secured over $2,000,000,000 in new orders across the company. On Slide 4, I summarize some of the quarter's highlights. First, we generated free cash flow $7,000,000 driven by our improving operations and reduced working capital. Cost reductions, lien events and a more favorable Sales mix as well as retirement of programmatic risks yielded a 20% EBITDAP margin in our Systems and Support segment.

By many of our peers, organic sales declined slightly due to short term order deferrals on commercial wide body and military OEM platforms, though partially offset by returning MRO orders. The temporary flat spot in the recovery is expected to abate early in our I'd like to provide context on how we are positioning Triumph in the macro environment. Commercial aircraft deliveries are on the rise. In 2021, Airbus delivered 6 11 commercial aircraft and Boeing 340 for a total of 9 51 aircraft, up 33% from 2020. 2022 combined deliveries are projected to exceed 1400 for Airbus and Boeing totaled approximately 10.40 for the year, marking an exit from the COVID induced aviation downturn.

The freighter market continues to be strong with wide body fleets up 36% and narrow body up 50% since the beginning of on the new A350 and 777X freighters. Increases in both commercial transport and freighter markets provide reason for optimism over our planning horizon. Narrow body looks strong also. Prime shipments to Boeing and Airbus for the 737 and A320-three twenty one were up 54% quarter over quarter. Backlog for 7 37 and A320-three twenty one is up 47% 27% respectively year over year.

Plans for the 7 37 MAX return to service in China, Indonesia, Hong Kong and Ethiopia provide tailwinds on both the OEM and aftermarket demand. The trajectory of the aviation recovery, though paused by the omicron variant, continues to be upward. The broad recovery of these platforms benefits Triumphs as our year to date book to bill ratio through December reached 1 0.15 led by our actuation business. While orders are up, Short term systems and support revenues in the quarter declined as a result of timing or deferments compared to prior year and sequentially. Both of these headwinds to abate in the coming quarters.

Anticipated ramp up of 787 shipments coupled with recently secured pricing resets will aid top line and margin expansion in the coming quarters.

Speaker 3

New wins for

Speaker 2

the quarter can be seen on Slides 5 And 6, Triumph continues to win in a competitive market on the strength of our platform and competency, innovation and IP. We've won more than $2,000,000,000 of new orders year to date. That's a year to date since 2016. We set an internal goal to expand sales from new products, platforms and customers by 25 over the next 3 years. Orders from these sources are up 38% from prior year.

Triumph's interior business is a global market leader in thermal acoustic cabin insulation. We were recently selected to design and build the A220's Our actuation business won 4 awards, an innovative electromechanical actuator for Raytheon's next gen jammer, a holdback are for an undisclosed Lockheed Martin platform, a weapons bay door actuation order for the FARA future vertical lift program and an integrated hydraulic power pack for a passenger to freighter conversion program. Mechanical Solutions business, the market leader in precision low hysteresis control cables was awarded a design and build For the Callidus B250 light attack aircraft, we were also awarded a remote mechanical valve Tuition system for French nuclear power plant. And in the Geared Solutions business, which is the largest third party aerospace gear In the world, we finalized large contract extension with Rolls Royce for a suite of military and commercial applications. Finally, our product support business formally launched the Xcel JV to overhaul nacell components on the 787 7 37 MAX, while extending our aftermarket offload partnerships with Collins on the Bombardier CRJ and with Brazilian Appreciate our dependability, quality and consistent turnaround times.

Turning briefly to our supply chain, we continue to focus on cost for materials, labor and overhead given the ongoing inflationary market pressures. Balancing risk opportunity with respect to commodities and supply chain inflation. Over the next 3 years, our existing indices and general protections against material price changes above certain threshold levels. Brian recently held a supplier conference with our top 50 partners, where we discussed how to mitigate anticipated supply chain constraints expected over the next 12 18 months and stress the importance of preparing for the coming ramp. We presented the latest production rates and are staying in lockstep with the OEMs on their delivery forecasts.

The pandemic created many challenges, but also opportunities. Triumph is renewing the social contract with our employees to include greater flexibility for both salary and hourly team members to make Triumph a preferred place to work. Satisfaction and performance. This discussion is underway across every level of our organization. Referred to internally as the New Deal, we are tapping into the demonstrated levels of workforce engagement and virtual collaboration tools to reinvent the office and factory as we accelerate the adoption of empowered cross functional teams across the company.

As a result, We anticipate higher levels of productivity towards our stated goal of doubling profitability. In my Our new approach to workforce engagement will be one of our most valuable lessons from the pandemic. In summary, Triumph grew margins in the quarter in our core systems and support business and retired several non recurring cash uses. Short term order Deferrals on 787 and military OEM production are expected to abate in our fiscal 2023 and are being offset by our new contract wins. Our actions in this quarter combined with OEM and MRO rate increases will support our expanded margins and improved cash flow, putting us on a solid path to deliver growth while deleveraging the company year over year.

As we move forward, we are investing in our people, operations and products to ensure Triumph remains differentiated and delivers enhanced shareholder value year over year. With that, Jim will now take us through the results for the quarter in more detail. Jim? Thanks, Dan,

Speaker 3

and good morning, everyone. As I review the financial results for the quarter, please refer to the presentation posted with our release today. Triumph was cash positive and profitable this quarter on both a GAAP and adjusted basis. Will be discussing adjusted results, so please see our earnings press release and the supplemental slides in the presentation with the explanation of our adjustments. On Page 7 are our consolidated results for the quarter.

Revenue of $319,000,000 reflects increased revenue from narrowbody and bizjet platforms and growth in 3rd party MRO revenue. This was offset by the combination of the 787 rate reductions and short term military OEM delivery I mean, continuing the shift towards our core. Systems and support revenue now makes up 74% of total revenue in the quarter, up 62% a year ago. Adjusted operating income of $33,000,000 represents a 10% operating margin, an increase from 9% a year ago. Systems and support generated substantially all the operating income this quarter.

Notice that our adjustments are getting smaller with only a $1,000,000 difference between the $28,000,000 GAAP operating income and $33,000,000 adjusted operating income this quarter, reinforcing Triumph's ability to become predictably profitable. All of the $5,000,000 adjustment is attributable to the Structures segment this quarter due to our 747 production facility shutdown in Grand Curry, Texas, which was completed in December and the shutdown of our interiors facility in Spokane, Washington, which will be complete in the first half of this calendar year. Turning to Page 8, you'll see our systems and support results and highlights. Revenue in the quarter included higher narrowbody and bizjet platform revenue and a 12% increase in our 3rd party MRO revenue over the prior year quarter. This was offset by delivery timing in our military OEM programs and the 787 short term volume decreases.

Systems and support operating income was $41,000,000 or 17% for quarter, which is a 60 basis point increase over last year on an adjusted basis. System to support EBITDA was $47,000,000 or 20%, A 220 basis point increase over last year, a measurable step towards our goal of doubling EBITDA over the next 3 years. Previously announced sale of Systems and Support's Staverton UK facility and the sale and licensing of certain related legacy product lines closed in early October. We to reduce debt. On Page 9, you'll find Structures results and highlights.

Structures revenue of $83,000,000 was up 3% organically over last year, that's excluding divestitures and sunsetting programs. 7 37 production rate increases contributed to growth. At 26% of total revenue, we continue to make good progress on the revenue mix shift towards systems and support. At End of the quarter, we exited our last 747 production facility on time and under budget. Sale of the Stewart Structures facility is expected to close in the first half of this calendar year.

This divestiture will complete our comprehensive exit of our build to print and contract manufacturing structures business. Given the pending exit of structures, we are evaluating supplemental disclosures to provide additional insight into our continuing business going forward. On Page 10 is our free cash flow walk for the quarter year to date. Consistent with our guidance, we generated $7,000,000 of free cash flow in the quarter. We continue to reduce non recurring cash uses and are on track to increase our free cash flow generation in Q4.

As expected, free cash flow this quarter included $28,000,000 of non recurring cash drivers, including $21,000,000 of advanced liquidations and 8,000,000 funding of previously accrued 747 losses. We expect a total of $166,000,000 of non recurring cash uses for the full year detailed on the slide. Capital expenditures increased to $7,000,000 this quarter with investment in our systems and support segment in support of rising OEM and MRO demand and sustaining supporting infrastructure improvements. On Page 11 is schedule of our net debt and liquidity. During the quarter, we paid down our 1st lien notes by $24,000,000 from the proceeds of the Saverton divestiture.

We also extended the maturity of our receivables securitization facility to November of 2024 and increased its capacity from $75,000,000 to $100,000,000 It serves as a low cost source of contingent liquidity. At the end of the quarter, we had about $1,400,000,000 of net debt, down 11% from a year ago. We also had $250,000,000 of cash and availability, which is more than sufficient for our projected needs. Our next debt maturity is over 2.5 years from now. We deleveraging by reducing debt with proceeds from divestitures and by expanding free cash flow and EBITDAP in our continuing businesses.

On page 12, you'll find a summary of our fiscal 2022 guidance. Based on anticipated aircraft production rates and excluding of potential divestitures, for fiscal 2022, we expect revenue of approximately $1,500,000,000 We expect adjusted EPS of $0.80 to $0.90 per diluted share. Cash taxes net of refunds received are expected to be approximately $5,000,000 in the year. Continue to expect interest expense to be approximately $140,000,000 including $137,000,000 of cash interest. For the full year, we expect to use $125,000,000 of cash from operations with approximately $25,000,000 in capital and expenditures resulting in free cash use of approximately $150,000,000 We continue to achieve our goals and have made significant progress in improving the predictability of our profitability and cash flow.

Our portfolio actions, operational efficiencies, improved Pricing, cost reductions and increases in volume will all contribute to improving margins and cash flow moving forward. We are stronger and more competitive today for all the actions we have and are taking. Most importantly, Triumph is now primarily a systems and support Our mix of business includes more IP based and spares revenue than it has in the past. We can earn higher margins, Less capital than we could in our former build to print businesses. We continue to invest in our people who develop and deliver unique and valuable solutions for our customers, which results in sustainable profitable growth.

Now I'll turn

Speaker 2

the call back to Dan. Dan? Thanks, Jim. Despite the market dynamics, I'm pleased with our Q3 and fiscal year to date results providing us with solid momentum to deliver strong Q4 of fiscal 2022. Winning new IP based business and exiting build to print structures are at the core of our path to value as we continue our work towards our desired business portfolio.

Looking ahead, We remain focused on the elements within our control as demonstrated by our pivot to growth through new wins and strategic partnerships, both of which will enable Triumph to further diversify our backlog and increase our top and bottom lines. Value for the benefit of all our stakeholders. We're happy now to take any questions.

Speaker 1

At this time, the officers of the company would like to open the forum to any questions that you may have. We ask that you limit yourself Sheila Kahyaoglu, please state your affiliation followed by your question.

Speaker 4

Good morning, Dan and Jim. It's Sheila from Jefferies. Can you talk about the structures business now that Stewart is On its way to being finalized, what we should think about your revenue and EBITDA profile given What sort of revenue run rate and given about breakeven margins this quarter?

Speaker 3

Thanks, Sheila. Good morning. The structures business didn't contribute a lot to EBITDA. We've guided to breakeven and it will benefit from some of the tailwinds of 7 37, which Now and then from 787 when that comes back. But structures, the continuing business there is the interiors business.

That's much it's very different than the large metallic structures business that we've been divesting and that Steward is part of. The interiors business just signed some long term contracts with major OEMs and it's going to see improving margins with volume returning. It's a very different business Because of smaller parts, they're unique. We do have a little bit of proprietary content in there. So, in terms of the size The business is going to be much smaller.

And what's most important is that we really are systems and aftermarket company now. So the size of structures that are shrinking, but the size of systems and the aftermarket business is about 74% of revenue and it's

Speaker 4

about the interiors business is around $175,000,000 to $200,000,000 is that sort of the size? And maybe as a follow-up, I don't know if you provided proceeds to the Stewart divestiture, but if you're willing to give that.

Speaker 3

Yes, the details of Stewart will be undisclosed When we close the transaction in the coming months, so we haven't given that yet. In terms of the size of structures moving forward, I think you're in the ballpark and it could be higher than that given the return of volumes on some of the major programs.

Speaker 4

Okay, great. Thank you.

Speaker 1

Thank you. Peter Arment, please state your affiliation followed by your question.

Speaker 5

Hey, Dan, maybe you could just talk about systems margins, kind of Sustainability, high 17% in the quarter, but just how you're thinking about the ability to sustain kind of high teens margins, particularly Volume starts to pick up

Speaker 3

as we get into fiscal 2023.

Speaker 2

Yes. Our goal is not to sustain them Peter, it's To increase them into the 20s and our path to that is 1 part mix change Where we increased the contribution of MRO and spares versus OEM. That started 2 years ago when we Our 3rd party MRO and OEM MRO businesses to help our OEM businesses grow their aftermarket and recapture the tail. So that's a multiyear initiative that's going to benefit us on going forward. The 2nd, enabler for the systems margins exiting or renegotiating programs That have margins below our weighted cost capital.

And so in Q3, we continued this cadence of Meeting with OEMs, making the case for either price ups or sourcing the work at another customer and That's also going to be kicking in over multiple years as those new contracts replace the ones that are running out. And the 3rd initiative is products. I mentioned in my script about growing revenue to the point where 20 percent of our sales comes from new products, customers and markets. And so this is where the IP based products That are in development right now. I just came back from our Clemens, North Carolina plant where I walked through all of the test labs where they have new fuel pumps, New hydraulic pumps that are in qualification and a lot of those have been developed with customer money, what we call PRAD, contract research and development.

So as those products come in, we'll be able to enhance our margins. So it's really the combination of those three drivers to get systems where we want them

Speaker 3

to be. Appreciate that. And just as a

Speaker 5

follow-up, just circling back to the comment question on Stuart. Is there any details regarding if you've had any customer agreements yet on the sale? What can you provide us whether that's already been approved?

Speaker 2

Yes. Thanks. Thanks, Peter. So we start the dialogue with Boeing on Stewart 3, 4 years ago with Kevin Shamm, CFO of Boeing Commercial. And so it's been Partnership trying to identify the best long term partner to own it.

Triumph has improved the business on our watch. It's become stable as a source of delivery. It's a business that has been profitable for us. We're not the right long term owner. It's not an area we want to continue to invest, but there are other buyers.

And I think the her, It wasn't clear at the end who would win the race and part of the delay was we had multiple interested parties. But To her being a 1st tier supplier and an OEM in their own right with a desire to Expand the U. S. Footprint and increase Boeing content is going to be a tremendous owner. And they did Have meetings with Boeing prior to the announced signing.

And I understand I was not in those meetings. I understand they went well. Triumph Triumph is committed to a smooth transition. We owe Boeing delivery on time with quality and that's a challenge every day and we intend to fulfill it. We understand the importance to Boeing on both the tanker and the freighter, the wing center sections that are produced there as well as Seven parts and some parts for Gulfstream.

So early discussions have begun and we're confident that it will be a consensus will be received And we'll close on a timely basis.

Speaker 3

Appreciate it.

Speaker 5

Thanks, Dan.

Speaker 3

You bet.

Speaker 1

Thank you. Seth Seifman, please state your affiliation followed by your question.

Speaker 6

Hey, good morning. It's Seth from JPMorgan. Guys, I wonder once the Stewart transaction is closed. How you plan to report? Will there still be a structures segment comprised Solely of the interiors business?

Will there be no segments or will there be new segments?

Speaker 2

Yes, great question. We're committed to provide transparency and the kind of visibility that analysts and investors can model the company properly. Underneath systems, there really are 5 operating companies, each with $200,000,000 to $300,000,000 in sales. So one of the ideas we're kicking around and we welcome feedback from investors is reporting on that level rather than reporting tasks And TSS, there is some work involved to do that. You've got to go back a couple of years and report it in that breakout.

But the key is that we operate, organize and report in a consistent manner and we're working on the plan To do that, we'll discuss it with the Board here in February. And our goal is to let you know the game plan in April, we start the New Year. But you Have our commitment to provide the kind of visibility necessary to understand the company. Jim?

Speaker 3

Yes, Seth. We're going to look to provide a Supplemental disclosure is what I mentioned in my remarks to go a little deeper, but within the existing structure right now. So we want to provide that transparency and information, but we don't want to create extra work, especially for investors to have to go and look at things historically. So we'll talk to many investors over the And make a determination for that going forward.

Speaker 6

Great. Thanks. And then, just as a follow-up, Dan, if I could dig in a little bit more about the IP and proprietary content that you mentioned and I apologize for a bit of a series of questions here, but any color you could provide would be good. I guess historically, kind of thought of Maybe the old integrated systems business maybe being 15% to 20% Proprietary aftermarket and that would include both commercial and military. I guess, how do you think about where that is now?

And I guess putting it in the context of those systems and support versus the old integrated systems. And then the 25% that you talked about, Is that sort of a is that the goal from where we are now? And How long you kind of think about it taking to get there and how far some of the work that you talked about today

Speaker 2

I'll start with the second part on growing revenue, 25% of it being from new products, We initiated that goal in our fiscal 2022. So we're 10 months into it. And when you a goal like that, it starts with adjusting your strategy that leads to captures, that leads to orders and then sales materialize. So you can't go from aspiration to goal to sales in one step. You have to go through the pivot to that.

But when I mentioned that our orders coming from those sources were up 38%, it's a really good sign I'm that our team has made that pivot and they've started to engage new customers. I mentioned in the quarter, some of our Press releases were now heavy into the freighter conversion markets. When an operator Acquires, let's say, used A321s that got to modify the fuselage and put in a main cargo door and had actuation, we provide That they have to modify the interior, we do that work. So that's an example of new products, new services. The Xcel America's JV with Air France KLM is another example.

And we've been working on this for a couple of years. It's now officially live. And what it's focused on in partnership with Air France, which is a 14,000 person MRO business that will All the North and South American, 737 MAX, the 787s, The A320neos, the A350s, all the new and coming aircrafts on the sell overhaul repair work, mostly thrust reversers. So that's another example of another partnership and going after a new segment, new platforms that are Currently not in our 3rd party MRO business. As far as IT, what we're really focused on is our core products, fuel pumps, Actuation, heat exchangers and engine controls, those four products.

And when Triumph was Tied on cash as we've been for the last few years, we really had to work with customer funded R and D and we've been very successful Companies like GE have helped develop like the next generation military fuel pump that will benefit multiple platforms. And that's the key is don't do one shot IP. That's a point solution for program, but develop a core product that can be applied to multiple applications and platforms. So, we're all about that trying to figure out how to both develop in partnership with our customers and then apply these new products. The percentage of IP are higher than I think you called it like 15 10%.

Speaker 3

Yes, it's more like 60% in the systems and support business as IP driven. And when you add in the Sole source, it can be up to 90% in that segment. Yes.

Speaker 2

So we just plan to continue to expand that. And one other change that Relates to this is Triumph used to go to market through separate companies and sell piece parts. Now we go to market On subsystems like landing gear where we can not only sell the actuators that raise lower gear, but the uplocks As well, it's been a good platform for us. And our Seattle R and D side is now developing Programs that benefit multiple OEM sites across the company. So, we're excited about it.

The leadership team knows that they have to pivot from Frraction and divestiture to growth in the IP business will be a key part of that.

Speaker 6

Great. Thank you very much.

Speaker 2

Thank you.

Speaker 1

Thank you. Myles Walton, please state your affiliation followed by your question.

Speaker 5

Thanks, UBS.

Speaker 7

Good morning. I was hoping you could give us some color on the EPS implied for the Q4 and sort of what's Underlying, obviously, an increase in exit margins, I think somewhere in the 12% to 13%. And I wonder is the Aviation Manufacturing Jobs Program in that number? I think there's still about $17,000,000 left to run through the P and L. And that the source of the upside to EPS?

Speaker 3

Yes. Thanks, Myles. This is Jim. That is part of the mix. It's certainly The AMJP money, we got $10,000,000 in the quarter of cash.

We recognized about $2,700,000 in the 3rd quarter, and that gets recognized over the 6 month period. So there will be some of that in the Q4. Q4 is also a seasonally strong quarter and of course we're seeing the ramp on certain programs. We have some delays in military programs that should benefit there was a delay in Q3, it will benefit Q4. So, it's a lot in the mix, but that is part of it and we're pleased that the government is providing that support to make sure we have a tailored workforce that continues, so we're ready for the ramp moving forward.

Speaker 7

Okay. And then just a clarification, I don't know if for Dan or Jim, but the doubling of EBITDA from 2022 to 2025 fiscal, Is that it looks like implied EBITDA for this year somewhere in the EBITDA by imagine you're talking about Somewhere in the 180 range, I think based on your numbers. Is that doubling that number or doubling it less the Estitures that you've made and targets, sorry.

Speaker 3

So it's a target. So it will be doubling the continuing business. Of course, we can't double EBITDA We may have sold the businesses, but if you look at what we did in the quarter, it's about $41,000,000 $42,000,000 of EBITDA in the quarter for the full company. And year to date, I think we're $23,000,000 but the 4th quarter is the strongest quarter of the year. It's a target we're working towards internally.

We see the levers to And look forward to giving guidance in the future towards that.

Speaker 7

Okay. All right. Thank you.

Speaker 1

Thank you. David Strauss, please state your affiliation followed by your question.

Speaker 8

Yes. Thank you, Barclays. Jim, the $166,000,000 in non recurring cash What does that bucket look like in 2023?

Speaker 3

Thanks, Dave. Well, what I can tell you is what's going on in the current year. We got $28,000,000 of those in the current quarter, dollars 21,000,000 of liquidation of advances, dollars 8,000,000 on fourseven funding. The fourseven shipped out, the production is complete. We have some shipments in the first half of this year.

So there will be some Wrap up on fourseven, but that shouldn't be that large. The advances at the end of December were about $124,000,000 And we've already we've spent our $21,000,000 in liquidation in Q4. So we're down Right now, at this point in time, about $103,000,000 of advances. And then between now and when we announced the Stewart closure, Sure. We'll be able to tell you more about what the timing of the liquidation of the remaining advances will be.

Speaker 8

Okay. On 7.47, you are applying cash costs or non recurring cash costs are going to be higher in 2023 than 20 22?

Speaker 3

No, no, no. That they're winding down. That there's going to That there's going to be some residual as we close-up the remaining factory where we're storing them and shipping them from. But it was only $8,000,000 in this quarter And it will be less moving forward.

Speaker 8

Okay. Got it. And any sort of early look On pension income, what that could look like in 2023 versus I guess you're running this year like 50 $5,000,000 $56,000,000 pension OPEB?

Speaker 3

Yes, pension to me the most important part of pension is what funding we have put into the trust. And there's no funding required over the next 4 years in our forecast right now. So, interest rates going up is going to reduce our liability. So, I don't have exact number, but it's not going to change materially and if it does, it's going to be a non cash change.

Speaker 8

Got it. Okay. Thanks very much.

Speaker 1

Thank you. Michael Ciarmoli, please state your affiliation followed by your questions.

Speaker 9

Truist Securities. Thanks. Good morning, guys. Maybe, Jim, just to stay on David's line of questioning on the Ash, I guess it sounds like you're not going to give some sort of walk here to 2023, but should we just assume as things stand today without Details from Stuart, you still have about $20,000,000 per quarter of liquidations. And then can you give us a sense, what did Stuart, what will it come up or contribute to free cash flow this year and CapEx, so we can kind of get some sort of level setting for next year?

Speaker 3

Yes, sure. In terms of advances, next year will be the last year there's any advanced liquidations and the exact timing of those It's going to be a term between now and the Stewart closing. In terms of CapEx run rate, we did spend $7,000,000 I believe in the quarter and that's a normalized run rate moving forward for the continuing business. Remember that with the remaining portfolio, it's much less It's actually more R and D intent and we're spending more in R and D, both from customer funded and funding ourselves. And that's going to Help us improve our margins and our mix of business moving forward.

Yes, Stuart.

Speaker 9

Okay. Out of the CapEx this year, how much was related to Stuart?

Speaker 3

It's very little. It's a couple of $1,000,000 maybe.

Speaker 9

Okay. And then just last one on the guidance, the drivers to the downward revisions to the low end of the ranges on revenue and cash. First, I'm assuming Stuart is still in there and is that just a function of kind of what you called out the 787 and the deferred military orders things sliding into 23?

Speaker 3

Yes, exactly right. Stuart is still in there in the guidance until we actually close.

Speaker 9

Got it. All right, great. Thanks guys.

Speaker 3

Thank you.

Speaker 1

Thank you. Mariana Perez Mora, Please state your affiliation followed by your question.

Speaker 10

Everyone, this is Mariana from Bank of America.

Speaker 3

Thanks, Warren.

Speaker 10

So this is a follow-up to Mike's question. 1, it's also related to free cash flow. How should we think about mid- to long term target free cash flow? And what are the key variables that will determine when and if you are able to achieve that?

Speaker 3

Thanks, Mariana. The cash flow is positive this quarter. It's going to be more positive in Q4. And the drivers for cash flow moving forward, I can tell you what they are and you can do your own work until we give guidance to determine what you think we can achieve relative to our peer group. But these portfolio actions have been important.

They are improving our margins moving forward. For example, our aftermarket business, which is so important because it Higher margin at spares and repairs has moved from 24% in last year's Q3 up to 32% in this quarter. So Trink, that's really reduced substantially now with the fourseven being the last piece of it in Spokane. That's going away and the benefits of the restructuring actions and our ability to focus on our operating efficiencies in the core business are going to have benefits to profitability and cash flow as well. We've been able to reset Pricing on some key programs where we're not making money previously to some normalized margins and that's going to be helpful.

We've been able to get cost reductions working with our Supply chain and increases in volume are going to drive the bottom line as we see return to service on the 7 37 And some of the military programs start to ramp back up. So there's a lot of tailwinds for us moving forward on profitability and cash flow. It's not It's not going to happen overnight as the past couple of years has been lumpy, but we're certainly much more predictable and profitable business now. We just completed that Stewart divestiture and announced the closure of that, we look forward to give more insight into the drivers within each of the Opcos.

Speaker 10

Thank you. And then my follow-up is on the interior business. Would you mind discussing what is the breakdown between narrow body and wide body exposure?

Speaker 3

Well, let me first tell you that our OEM Business is 74% last year down to 66% this year. Our largest program for narrow body right now is the Airbus program followed by 7 37. So you can look in the presentation on Page 14 and you'll see a breakdown of all of our programs and what percentage of backlog they comprise. So for example, A321 is 7% of our overall backlog. And you can see by the color coding on there what portion is in the This additional information a couple of quarters ago to start to give people better insights into what the quality of our backlog is and what sales going forward is going to look like.

Speaker 1

Since there are no further questions, this concludes today's Triumph Group's 3rd quarter fiscal year 2022 earnings conference call. This call will have a replay that will be available today at 11:30 am Eastern Standard Time through 24th at 11:59 pm Eastern Standard Time. You can access the replay by dialing 1-eight hundred-five eighty five-eight thousand three hundred and sixty seven and entering access code 6,195,350 5. Again to access the report, you can dial 1-eight hundred-five eighty five-eight thousand three hundred and sixty 7. And enter in the access code 6,195,355.

Thank you all for participating