First Quarter FY 21 Earnings Conference Call Daniel J. Crowley, - - PowerPoint PPT Presentation

Daniel J. Crowley, President and Chief Executive Officer James F. McCabe Jr., Senior Vice President and Chief Financial Officer

First Quarter FY’21 Earnings Conference Call

2 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Forward Looking Statements

This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “project”, “may”, “will”, “should”, “could”, or similar words suggesting future outcomes or outlooks. These forward-looking statements include, but are not limited to, statements of expectations of or assumptions about strategic actions, objectives, expectations, intentions, aerospace market conditions, aircraft production rates, financial and operational performance, revenue and earnings growth and profitability and earnings results. These statements are based on the current projections, expectations and beliefs of Triumph’s management. These forward looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results to differ materially from any expected future results, performance or achievements, including, but not limited to, competitive and cyclical factors relating to the aerospace industry, dependence on some of Triumph’s business from key customers, requirements of capital, uncertainties relating to the integration of acquired businesses, general economic conditions affecting Triumph’s business segments, product liabilities in excess of insurance, technological developments, limited availability of raw materials or skilled personnel, changes in governmental regulation and oversight and international hostilities and terrorism. In addition to these factors, widespread health developments, including the recent global coronavirus (COVID-19) and the responses there to (such as voluntary and in some cases, mandatory quarantines, as well as shut downs and other restrictions on travel and commercial, social and other activities) could adversely and materially affect, among other things, the economic and financial markets and labor resources of the countries in which we operate, our manufacturing and supply chain operations, commercial operations and sales force, administrative personnel, third-party service providers, business partners and customers and the demand for our products, which could result in a material adverse effect on our business, financial conditions and results of operations. For a more detailed discussion of these and other factors affecting us, see the risk factors described in “Item 1A. Risk Factors.” Further information regarding the important factors that could cause actual results, performance or achievements to differ from those expressed in any forward looking statements can be found in Triumph’s reports filed with the SEC, including in the risk factors described in Triumph’s Annual Report

• n Form 10-K for the fiscal year ended March 31, 2020.

3 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Q1 FY’21 Takeaways

• Taking action to protect our people and company during historic pandemic
• Though down year-over-year, Q1 in-line or better than anticipated
• Triumph product, platform, customer and end market diversity provides stability
• Aggressive cost reduction reflected in consistent gross margins
• Structures asset sales enhance liquidity and focus
• Reduced market volatility provides confidence in FY21 outlook

Priorities: Protect Our People, Conserve Cash, Collaborate with Our Customers

4 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Our Vision

As One Team, we enable the safety and prosperity of the world.

Our Mission

We partner with our customers to triumph over their hardest aerospace, defense and industrial challenges and to deliver value to our stakeholders.

Our Values

Integrity Continuous Improvement Teamwork Innovation Act with Velocity

5 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Q1 FY21 Results Drivers

Q1 Head Winds

• COVID-19 Impacts

X OEM Production Pauses (now over) X State of Baja Mandated Closures (reopened) X OEM Volume Reductions (rates stabilizing) X Excess Inventory ($200M in PO’s deferred)

• Sunsetting Programs Cash Use

X G280 (last wing delivered June 2020) X B747-800 (8 shipsets remaining – finish in FY21)

• Seasonality
• Q1 typically lowest % volume for the year.
• Working capital

X Non-recurring Q1 cash drivers

Headwinds Largely Subsiding – Tailwinds Support FY21 Directional Guidance

Q1 Tail Winds

✓ Military Sales up 29% and Military Backlog up 15% YOY ✓ Cargo MRO Demand up by 11% YTD ✓ Stable gross margins YOY ✓ Cost reductions on track with over $120M in savings in FY21 ✓ Executed Divestitures of G650 Wing Program and two Composites factories

6 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

F15-EX, T-7A, MQ-25, FVL

Triumph Diversity a Strength

Breadth of Missions, Customers, Platforms and Products

Largest TGI Program Stable

MRO Volume Up 11% TSS Backlog 52% Mil.

Commercial OEM New Mil. Platforms Proprietary Systems Next Gen Designs

Up 30% YOY in Q1

KC-46 & 767 Cargo Partners Military MRO Military Upgrades

OEM Rates Firming Up Design-Build-MRO Customer Funded

• Mil. Fuel Pumps
• Mil. Accessory Drives
• Mil. Thermal System
• Mil. Landing Gear

Thermoplastics C-17 Nacelles, Revers. F/A-18 Access. Drives T-700 Engine Control V-22 Pylon Conv. Act. CH-47 Fuel System AH-64 Thermal Sys.

7 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Executing Structures Strategic Review

Reducing Risk and Cash Use – Improving Liquidity – Driving to Future State

Completed Divestitures Q2 FY21 Transactions Program End / Volume

8 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Market Conditions Snapshot

COMMERCIAL

• Load factors and utilization rising
• TSA throughput rose 3.5x since 4 May
• Flights up 113% since 4 May
• Freighter fleet traffic up 20% since January
• Freighter Utilization increased 10%

MILITARY

• DoD budgets up 3.6% in 2020
• Readiness driving Military MRO spending

MRO

• Triumph seeing MRO demand recovery in June

Global Aircraft Tracked Daily

9 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Growing Organically to Offset COVID-19 Impact

Co Competit itiv ive Wins ns Cus Customer BU BU CH-47 UK MRO Boeing Defense TSS M1 Abrams Control Assembly Honeywell TSS A321XLR Service Panel Lever Assembly Diehl Aviation TSS Farley Nuclear Plant Westinghouse TSS F/A-18 Next Generation Jammer Northrop Grumman TSS Orion Spacecraft Heat Exchangers Collins Aerospace TSS T-7A Flight Test Integration Boeing Defense TAS Foll

• llow-on Bus

Busin iness Cus Customer BU BU E-2D Hawkeye EMIRS Systems Northrop Grumman TSS Bell 429 Cockpit Controls Bell Helicopter TSS F/A-18 Holdback Fitting, Probes, Door Act. Boeing Defense TSS Railway Sensors Alstom Transport TSS F-16 Fuel Oil Heat Exchanger US Air Force TSS Par artnership ips Cus Customer BU BU COVID-19 PPE Manufacturing Initiative Local Hospitals TSS Rolls-Royce 250 Distributorship VSE Aviation TSS

Winning Across Markets, Customers and Platforms

10 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Expanding Military Program Content

Boeing F15-EX Boeing T-7A Trainer

• Legacy provider for F-15 + New EX content
• Six factories providing sole source engineered product

− APU & gun drive motors − Thermal packages − Valves − Nose wheel steering

• Substantial systems & structures content
• 3DX Digital Thread live and in use
• ‘Smart Tooling’ records hole sizes, torque values
• ‘Wearables’ provide mechanic heads-up displays
• Recent Instrumentation win

11 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Consolidated Quarterly Results

($ in millions) FY’21 Q1 FY’20 Q1 Net Sales $495 $731 Operating (Loss) Income (252) 36 Operating Margin (51)% 5% Adjusted Operating Income* $15 $42 Adjusted Operating Margin 3% 6%

Organic sales decreased only 29% including planned reductions from our portfolio transformation and sunsetting programs, due in large part to the diversity of our markets and programs including a modest increase in military sales. Adjusted operating income this quarter excludes $252 million non-cash impairment in structures and $15 million of restructuring costs in the quarter necessary to adjust to market demand.

Profitable on Adjusted Basis Through Product Mix and Cost Reduction

*See Appendix for Non-GAAP reconciliation

12 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Revenue

Systems & Support

Financial

• Net sales decreased 24% on production rates changes and site closures from key

commercial airframe customers; aftermarket decline mitigated by strong military spare sales − Airbus and Boeing driving commercial OEM down 53% − Military sales up on key new wins 28% − Aftermarket sales down 13% to prior year

• Operating margin down 344 basis points. Reduction driven by deleverage and

restructuring costs. Reduced operating expenses by 11% versus prior year − Excluding restructuring costs, operating margins were 11.7%

Diversification to Adjacent Markets and Increased Military Focus

$239 $314 $- $100 $200 $300 $400 Q1 FY'21 Q1 FY'20

Operating Income & Margin

$25 $44 $- $20 $40 $60 Q1 FY'21 Q1 FY'20

10.6% margin 14.0% margin

Highlights

Executing on diversification strategy; key wins in nuclear, military and aftermarket

New Wins and Contract Renewals

• E-2D Hawkeye EMIRS System
• Farley Nuclear Plant Detector Drive System
• Recapture of M1 Abrams Tank Control Assembly
• 6-year MRO renewal for CH-47 Chinook fleet
• AH-64 Engine Control MRO for US Army

E-2D Hawkeye

13 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Revenue

Aerospace Structures

Continued Program and Portfolio De-risking Towards Completion in FY 21

$258 $419 $0 $100 $200 $300 $400 $500 Q1 FY'21 Q1 FY'20

Operating Income & Margin

($256) $12

($300) ($200) ($100) $0 $100 Q1 FY'21 Q1 FY'20

2.9% margin (99.3)% margin

Highlights

• G280 Final Wing delivery out of Tulsa in Q1;

program achieved significant improvements

• ver last 12 months of production
• Completing remaining 747 end item work and

progressing shutdown activity

• Accelerated 767 Horizontal work transfer –

complete Nov 2020

• Furlough implemented at Stuart, FL and

Milledgeville, GA to align with Boeing shutdown

Financial

• Decline in organic sales and gross margin driven by 737 MAX and other

Commercial program customer-driven rate reductions; YOY metrics also impacted by the Nashville and Embraer divestitures − Volume and divestiture impact was partially offset by 747/767 settlement with Boeing in Q1 FY21 and improvement on legacy programs (V-22, HALE and G550)

• Austerity measures and cost reduction initiatives implemented across all of

TAS to offset absorption impact of lost volume as a result of COVID-19 build- rate changes

KC-46

14 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Free Cash Flow Walk

COVID-19 caused a temporary increase in working capital usage as we adjust our supply chain to the lower demand We liquidated $10 million of customer advances G280 program used $28 million cash in the quarter

• G280 & B747-8 expected to use $80 million Q2-Q4

Severance-driven restructuring costs were $15 million Cash use is expected to reduce in Q2 and be breakeven to modestly positive in the second half

See Appendix for reconciliation of cash used in operations to free cash use

Q1 Working Capital Headwinds Expected To Reverse In The Second Half of the Year

Consolidated ($ in millions) FY’21 Q1 Net loss $ (277) Non-cash items: Depreciation & Amortization 29 Non-cash Intangible Impairment 252 Interest Expense & Other 35 Amortization of Acquired Contracts (11) Pension Income (8) OPEB Income (2) Income Tax Expense 1 Cash uses: Working Capital Change (201) Interest Payments (13) Capital Expenditures (8) OPEB Payments (1) Tax Payments, net Free Cash flow/(Use) $ (205)

15 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Net Debt & Liquidity

($ in millions) FY’21 Q1

Sufficient Liquidity and Covenant Compliant; Continue to Evaluate Opportunities to Enhance Both

Cash $ (31) $600M Revolving Credit Facility 175 $75M Receivable Securitization Facility 56 Capital Leases 24 2014 Senior Notes Due 2022 300 2019 Senior Notes Due 2024 525 2017 Senior Notes Due 2025 500 Net Debt $ 1,549  Cash and Availability ~ $354M  First Lien Leverage Ratio ~1.1x vs. 2.50x  Interest Coverage Ratio ~2.5x vs. 1.85x

16 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Full Year FY’21 Q1 Actual Q2 Q3-Q4 TGI Guidance

Revenue $0.5B $1.8B – $1.9B Cash flow items ($ mm) Cash interest and taxes (13) Large commitments vs Q1 2H in line with 1H Capital expenditures (8) Generally in line with Q1 Generally in line with Q1 per quarter Cash impacts to A/P & Accrued expenses (158) Significant improvement vs Q1 Continued improvement but still negative Cash impacts to A/R, Inv. & Contract assets (6) Neutral to cash Increasingly positive in second half (167) Significant improvement vs Q1 but still a use of cash Expected to be neutral to slightly positive for second half Moderately higher use of cash than Q1 for the full year Advance Liquidations (10) Generally in line with Q1 Generally in line with Q1 per quarter G280/747-8 exit costs (28) Generally in line with Q1 Continued cash outflows but less than Q1 and Q2 Total FCF (205) Significant improvement vs Q1 but still a use of cash Expected to be neutral to slightly positive for second half Moderately higher use of cash than Q1 for the full year

Key FY21 Guidance

Improvement in Cash Flow over Balance of Year

17 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Concluding Remarks

• Protecting our people and company
• Q1 in-line or better than anticipated
• Triumph diversity provides stability
• Aggressive cost reduction
• Divestitures enhance liquidity and focus
• Confidence in FY21 outlook

18 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Appendix

19 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Top Programs in Backlog

Systems & Support

Boeing V-22 Airbus A320, A321 Boeing 737 Boeing 787 Boeing AH-64 Boeing F/A-18 Sikorsky UH60 Northrop Grumman E2-D Boeing CH-47 Lockheed Martin F-35 Represents 52% of Systems & Support backlog Boeing 767, Tanker Gulfstream G650 Boeing 787 Boeing 747 Boeing 777 Boeing V-22 Airbus A350 Boeing 737 Northrop Grumman Global Hawk Gulfstream G280 Represents 90% of Aerospace Structures backlog

Aerospace Structures

20 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Restructuring by Business Unit

$ in Millions Q1 FY'21 Systems & Support 3 $ Aerospace Structures 7 Corporate 6 Total TGI 15 $ *

* difference due to rounding

21 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Non-GAAP Disclosure

Adjusted Operating Income is defined as GAAP Operating Income, less expenses/gains associated with the Company's transformation, such as restructuring expenses, gains/losses on divestitures, defined benefit plan gains/losses from curtailments, settlements, etc; impairments of goodwill and other assets. Management believes that this is useful in evaluating operating performance, but this measure should not be used in isolation. The following table reconciles our Operating income to Adjusted Operating income as noted above.

Three Months Ended June 30, 2020 2019

Operating (loss) income - GAAP $ (252,392 ) $ 35,511 Adjustments: Loss on sale of assets and businesses, net — 3,136 Impairment of long-lived assets 252,382 — Restructuring costs 15,439 2,964 Adjusted operating income - non-GAAP $ 15,429 $ 41,611 Adjusted operating margin 3.1 % 5.7 %

22 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Non-GAAP Disclosure

Non-GAAP Financial Measure Disclosures (continued) (dollars in thousands)

FINANCIAL DATA (UNAUDITED) TRIUMPH GROUP, INC. AND SUBSIDIARIES

Cash provided by operations, is provided for consistency and comparability. We also use free cash flow as a key factor in planning for and consideration of strategic acquisitions and the repayment of debt. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. The following table reconciles cash provided by operations to free cash flow.

Three Months Ended June 30, 2020 2019

Cash flow provided by (used in) operations $ (197,534 ) $ 5,018 Less: Capital expenditures (7,723 ) (8,090 ) Free cash flow (use) $ (205,257 ) $ (3,072 )

23 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Non-GAAP Disclosure

We prepare and publicly release annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with Securities and Exchange Commission (the "SEC") rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA, which is our net loss before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, depreciation and amortization; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit, including the effects of curtailments, settlements, and other early retirement incentives. We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations with our previously reported results of operations. We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures and, as such, we believe that the U.S. GAAP financial measure most directly comparable to such measures is net loss. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net loss the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA and Adjusted EBITDAP are not measurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to net loss, or as an indicator of any other measure of performance derived in accordance with U.S. GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net loss. In addition, we urge investors and potential investors in

• ur securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net loss set forth below, in our earnings releases, and in other filings

with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10- K that are filed with the SEC, as well as our quarterly earnings releases, and compare the U.S. GAAP financial information with our Adjusted EBITDA and Adjusted EBITDAP. Adjusted EBITDA and Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our U.S. GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities, partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net loss has included significant charges for depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA and Adjusted EBITDAP helps investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of non-cash charges, such as depreciation and amortization, and non-operating items, such as interest, income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide financial measures by which to compare our operating performance against that of other companies in our industry.

24 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Non-GAAP Disclosure, continued

Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using these non-GAAP financial measures as compared with net loss from continuing operations:

• Gains or losses from sale of assets and businesses may be useful for investors to consider because they reflect gains or losses from sale
• f operating units or other assets. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to
• ur operations.
• Legal judgments and settlements, when applicable, may be useful for investors to consider because it reflects gains or losses from

disputes with third parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our

• perations.
• Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of the adoption of

ASU 2017-07 and certain pension related transactions such as curtailments, settlements, early retirement or other incentives) may be useful for investors to consider because they represent the cost of postretirement benefits to plan participants, net of the assumption

• f returns on the plan's assets and are not indicative of the cash paid for such benefits. We do not believe these earnings (expenses)

necessarily reflect the current and ongoing cash earnings related to our operations.

• Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cash earnings on the

fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and

• ngoing cash earnings related to our operations.
• Amortization expense (including goodwill and intangible asset impairments) may be useful for investors to consider because it

represents the estimated attrition of our acquired customer base and the diminishing value of tradenames, product rights, licenses, or, in the case of goodwill, other assets that are not individually identified and separately recognized under U.S. GAAP. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

• Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment

used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our

• perating cost structure.

25 TRIUMPH GROUP / Q1 FY’21 / AUGUST 4, 2020

Non-GAAP Disclosure, continued

• The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or
• utflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day
• perating performance of our business.
• Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the

period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in

• ur business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day
• perating performance of our business.

Management compensates for the above-described limitations of using non-GAAP measures only to supplement our U.S. GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business. The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our net loss for the indicated periods (in thousands):

Three Months Ended June 30, Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (Adjusted EBITDAP): 2020 2019

Net (loss) income $ (277,314 ) $ 18,088 Add-back: Income tax expense 853 4,807 Interest expense and other, net 34,957 27,491 Loss on sales of assets and businesses, net — 3,136 Amortization of acquired contract liabilities (10,987 ) (16,939 ) Depreciation and amortization 280,984 44,050 Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") $ 28,493 $ 80,633 Non-service defined benefit income (excluding settlements) (10,888 ) (14,875 ) Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP") $ 17,605 $ 65,758 Net sales $ 495,077 $ 730,231 Net (loss) income margin (56.0 %) 2.5 % Adjusted EBITDAP margin 3.6 % 9.2 %