Triumph Group Reports First Quarter Fiscal 2020 Results

($ millions except EPS)

   Pre-tax

  After-tax

Diluted EPS

Income from Continuing Operations - GAAP 

$          22.9

$        18.1

$         0.36

Loss on divestitures

3.1

2.5

0.05

Transformation related costs:

   Restructuring costs (cash)

3.0

2.3

0.05

Adjusted Income from Continuing Operations - non-GAAP

$         29.0

$        22.9

$         0.46

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(in thousands, except per share data)

Three Months Ended

CONDENSED STATEMENTS OF INCOME

2018

Net sales

$       730,231

$       832,900

Cost of sales (excluding depreciation shown below)

582,233

770,214

Selling, general & administrative expenses

62,337

81,656

Depreciation & amortization expense

44,050

38,812

Restructuring expenses

2,964

4,047

Loss on divestitures

4,719

       Operating income (loss)

35,511

(66,548)

Interest expense and other

27,491

25,493

Non-service defined benefit income

(14,875)

(16,538)

Income tax expense

4,807

1,031

Net income (loss)

$        18,088

$        (76,534)

Earnings per share - basic:

Net income (loss)

$            0.36

$           (1.54)

Weighted average common shares outstanding - basic

49,854

49,552

Earnings per share - diluted:

Net income (loss)

$            0.36

$           (1.54)

Weighted average common shares outstanding - diluted

50,295

49,552

Dividends declared and paid per common share

$            0.04

$            0.04

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands, except per share data)

BALANCE SHEET

Unaudited 

Audited 

June 30,

March 31,

2019

2019

Assets

Cash and cash equivalents

$        28,927

$         92,807

Accounts receivable, net

331,509

373,590

Contract assets

323,869

326,667

Inventory, net 

470,448

413,560

Prepaid and other current assets

23,907

34,446

Current assets

1,178,660

1,241,070

Property and equipment, net

515,212

543,710

Goodwill

581,631

583,225

Intangible assets, net

418,494

430,954

Other, net

129,269

55,615

Total assets

$    2,823,266

$    2,854,574

Liabilities & Stockholders' Deficit

Current portion of long-term debt

$          8,150

$          8,201

Accounts payable

426,587

433,783

Contract liabilities

309,985

293,719

Accrued expenses

225,666

239,572

Current liabilities

970,388

975,275

Long-term debt, less current portion

1,427,419

1,480,620

Accrued pension and post-retirement benefits, noncurrent

522,916

540,479

Deferred income taxes, noncurrent

10,989

6,964

Other noncurrent liabilities

449,473

424,549

Stockholders' Deficit:

Common stock, $.001 par value, 100,000,000 shares

  authorized, 52,460,920 and 52,460,920 shares issued

52

52

Capital in excess of par value

859,280

867,545

Treasury stock, at cost, 2,455,767 and 2,573,652 shares

(149,767)

(159,154)

Accumulated other comprehensive loss

(489,277)

(487,684)

Accumulated deficit

(778,207)

(794,072)

   Total stockholders' deficit

(557,919)

(573,313)

Total liabilities and stockholders' deficit

$    2,823,266

$    2,854,574

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

CASH FLOWS

Three Months Ended

June 30,

2019

2018

Operating Activities

Net income (loss)

$        18,088

$        (76,534)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation & amortization

44,050

38,812

Amortization of acquired contract liabilities

(16,939)

(17,234)

Loss on divestitures & assets held for sale

3,136

4,719

Other amortization included in interest expense

1,958

1,887

Provision for (recovery of) doubtful accounts receivable

671

(14)

Employee stock compensation

2,426

2,462

Changes in assets & liabilities, excluding the effects of acquisitions/divestitures

Trade and other receivables

41,247

27,598

Contract assets

2,767

(23,221)

Inventories

(56,623)

(30,833)

Prepaid expenses and other current assets

12,721

3,898

Accounts payable, accrued expenses and contract liabilities

(32,119)

23,341

Accrued pension and other postretirement benefits

(15,792)

(18,691)

Other

(573)

(1,904)

Net cash provided by (used in) operating activities

5,018

(65,714)

Investing Activities

Capital expenditures

(8,090)

(12,200)

Proceeds from sale of assets

(2,570)

664

Net cash used in investing activities

(10,660)

(11,536)

Financing Activities

Net increase in revolving credit facility

(30,000)

113,186

Proceeds from issuance of long-term debt and capital leases

5,600

19,046

Repayment of debt and capital lease obligations

(30,572)

(53,762)

Payment of deferred financing costs

(104)

(64)

Dividends paid

(1,998)

(1,988)

Repurchase of restricted shares for minimum tax obligation

(1,043)

(532)

Net cash (used in) provided by financing activities

(58,117)

75,886

Effect of exchange rate changes on cash

(121)

(1,400)

Net change in cash

(63,880)

(2,764)

Cash and equivalents at beginning of period

92,807

35,819

Cash and equivalents at end of period

$        28,927

$         33,055

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

SEGMENT DATA

Three Months Ended

June 30,

2019

2018

Net sales:

Integrated Systems

$       252,226

$       241,039

Aerospace Structures

419,178

532,387

Product Support

61,756

66,215

Elimination of inter-segment sales

(6,741)

$       730,231

$       832,900

Operating income (loss):

Integrated Systems

$         34,772

$         35,409

Aerospace Structures

12,283

Product Support

9,276

7,669

Corporate

(18,394)

(27,577)

Share-based compensation expense

(2,426)

(2,462)

$         35,511

Operating Margin %

Integrated Systems

13.8%

14.7%

Aerospace Structures

2.9%

-14.9%

Product Support

15.0%

11.6%

Consolidated

4.9%

-8.0%

Depreciation and amortization:

Integrated Systems

$           7,067

$           7,555

Aerospace Structures

35,059

28,920

Product Support

1,090

1,670

Corporate

834

667

$         44,050

$         38,812

Amortization of acquired contract liabilities:

Integrated Systems

$          (8,125)

$          (8,849)

Aerospace Structures

(8,814)

(8,385)

$        (16,939)

$        (17,234)

Capital expenditures:

Integrated Systems

$           2,851

$           1,609

Aerospace Structures

3,973

10,138

Product Support

1,033

348

Corporate

233

105

$           8,090

$         12,200

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

Non-GAAP Financial Measure Disclosures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. In accordance with Securities and Exchange Commission (the "SEC") guidance on Compliance and Disclosure Interpretations, we also disclose and discuss certain non-GAAP financial measures in our public releases. Currently, the non-GAAP financial measure that we disclose is Adjusted EBITDA and Adjusted EBITDAP, which is our net income before interest, income taxes, amortization of acquired contract liabilities, curtailments, settlements and early retirement incentives, legal settlements, depreciation and amortization and Adjusted EBITDA, less pension & other postretirement benefits. We disclose Adjusted EBITDA and Adjusted EBITDAP on a consolidated and Adjusted EBITDAP an operating 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 to our previously reported results of operations.

We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measure and as such we believe that the GAAP financial measure most directly comparable to it is net income. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net income 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 GAAP and should not be considered as a measure of liquidity, as an alternative to net income (loss), income from continuing operations, or as an indicator of any other measure of performance derived in accordance with GAAP.  Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as substitutes for any GAAP financial measure, including net income (loss) or income from continuing operations. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net income set forth below, in our earnings releases and in other filings with the SEC and to carefully review the 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 GAAP financial information with our Adjusted EBITDA and Adjusted EBITDAP.

Adjusted EBITDA and Adjusted EBITDAP is 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 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 income has included significant charges for depreciation and amortization.  Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provides 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 is a measure of our ongoing operating performance because the isolation of non-cash income and expenses, such as amortization of acquired contract liabilities, depreciation and amortization, and non-operating items, such as interest and income taxes, 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 a financial measure by which to compare our operating performance against that of other companies in our industry. 

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 this non-GAAP financial measure as compared to net income: 

• Divestitures may be useful for investors to consider because they reflect gains or losses from sale of operating units.  We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

• Legal settlements may be useful to investors to consider because they reflect gains or losses from disputes with third parties. We do not believe that these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

• Non-service defined benefit income (inclusive of the adoption of ASU 2017-07) may be useful to investors to consider because they represent the cost of post retirement benefits to plan participants, net of the assumption of 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 below market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations. 

• Amortization expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights and licenses. 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 they generally represent 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 operating cost structure. 

• The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business. 

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

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

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our 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 income for the indicated periods (in thousands): 

Three Months Ended

June 30,

2019

2018

Adjusted Earnings before Interest, Taxes,
Depreciation, Amortization, and Pension (EBITDAP):

Net Income (Loss)

$        18,088

$        (76,534)

Add-back:

     Income Tax Expense 

4,807

1,031

     Interest Expense and Other

27,491

25,493

     Loss on divestitures

3,136

4,719

     Adoption of ASU 2017-07

-

87,241

     Amortization of Acquired Contract Liabilities

(16,939)

(17,234)

     Depreciation and Amortization

44,050

38,812

Adjusted Earnings before Interest, Taxes, 

  Depreciation and Amortization ("Adjusted EBITDA")

$        80,633

$         63,528

      Non-service defined benefit income (excluding settlements)

(14,875)

(16,538)

Adjusted Earnings before Interest, Taxes, 

  Depreciation and Amortization, and Pension ("Adjusted EBITDAP")

$        65,758

$         46,990

Net Sales

$       730,231

$       832,900

Net Income (Loss) Margin

2.5%

-9.2%

Adjusted EBITDAP Margin

9.2%

5.8%

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

Adjusted Earnings before Interest, Taxes,
Depreciation, Amortization, and Pension (EBITDAP):

Three Months Ended June 30, 2019

Segment Data

Total

Integrated
Systems

Aerospace
Structures

Product
Support

Corporate */
Eliminations

Net Income

$       18,088

Add-back:

     Non-service defined benefit income

(14,875)

     Income Tax Expense

4,807

     Interest Expense and Other

27,491

Operating Income (Loss)

$       35,511

$       34,772

$      12,283

$          9,276

$        (20,820)

     Loss on divestitures

3,136

-

-

-

3,136

     Amortization of Acquired Contract Liabilities

(16,939)

(8,125)

(8,814)

-

-

     Depreciation and Amortization

44,050

7,067

35,059

1,090

834

Adjusted Earnings (Losses) before Interest, Taxes, 

   Depreciation and Amortization, Pension ("Adjusted EBITDAP")

$       65,758

$       33,714

$      38,528

$        10,366

$        (16,850)

Net Sales

$     730,231

$     252,226

$    419,178

$        61,756

$          (2,929)

Adjusted EBITDAP Margin

9.2%

13.8%

9.4%

16.8%

n/a

Adjusted Earnings before Interest, Taxes,
Depreciation, Amortization and Pension (EBITDAP):

Three Months Ended June 30, 2018

Segment Data

Total

Integrated
Systems

Aerospace
Structures

Product
Support

Corporate */
Eliminations

Net Loss

$      (76,534)

Add-back:

     Non-service defined benefit income

(16,538)

     Income Tax Expense

1,031

     Interest Expense and Other

25,493

Operating (Loss) Income 

$      (66,548)

$      35,409

$     (79,587)

$          7,669

$        (30,039)

     Loss on divestitures

4,719

-

-

-

4,719

     Adoption of ASU 2017-07

87,241

-

87,241

-

-

     Amortization of Acquired Contract Liabilities

(17,234)

(8,849)

(8,385)

-

-

     Depreciation and Amortization

38,812

7,555

28,920

1,670

667

Adjusted Earnings (Losses) before Interest, Taxes, 

   Depreciation and Amortization, Pension ("Adjusted EBITDAP")

$       46,990

$       34,115

$      28,189

$          9,339

$        (24,653)

Net Sales

$     832,900

$     241,039

$    532,387

$        66,215

$          (6,741)

Adjusted EBITDAP Margin

5.8%

14.7%

5.4%

14.1%

n/a

* 

Operating loss at Corporate includes share-based compensation expense

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

Adjusted income from continuing operations before income taxes, adjusted income from continuing operations and adjusted 

income from continuing operations diluted per share, before non-recurring costs has been provided for consistency and comparability.

These measures should not be considered in isolation or as alternatives to income from continuing operations before income taxes, 

income from continuing operations and income from continuing operations per diluted share presented in accordance with GAAP.  

The following table reconciles income from continuing operations before income taxes, income from continuing operations and 

income from continuing operations per diluted share, before non-recurring costs.

Three Months Ended

June 30, 2019

Pre-tax

After-tax

Diluted EPS

Income from Continuing Operations- GAAP

$       22,895

$      18,088

$         0.36

Adjustments:

Loss on divestitures - incurred to date

3,136

2,477

0.05

Restructuring costs - incurred to date

2,964

2,342

0.05

Adjusted Income from Continuing Operations- non-GAAP

$       28,995

$      22,907

$         0.46

Three Months Ended

June 30, 2018

Pre-tax

After-tax

Diluted EPS

Loss from Continuing Operations- GAAP

$      (75,503)

$     (76,534)

$        (1.54)

Adjustments:

Adoption of ASU 2017-07

87,241

85,474

1.72

Loss on divestitures

4,719

4,719

0.09

Restructuring costs (cash)

4,047

3,359

0.07

Adjusted Income from Continuing Operations- non-GAAP

$       20,504

$      17,018

$         0.34

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

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, 2019

June 30, 2018

Operating Income (Loss) - GAAP

$        35,511

$        (66,548)

Adjustments:

Adoption of ASU 2017-07

-

87,241

Restructuring costs (cash)

2,964

4,047

Loss on divestitures

3,136

4,719

Adjusted Operating Income-non-GAAP

$        41,611

$         29,459

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,

2019

2018

Cash flow provided by (used in) operations

$          5,018

$        (65,714)

Less:

Capital expenditures

(8,090)

(12,200)

Free cash use

$         (3,072)

$        (77,914)

The Company provides cash flow guidance on non-GAAP basis adjusting capital expenditures from cash from operations to arrive at free cash flow.

The following table reconciles cash from operations on a GAAP basis to free cash flow guidance.

FY 20 Cash Flow

Guidance Range

Cash flow from operations

$50,000 - $110,000

Less:

Capital expenditures

$50,000 - $60,000

Free cash flow

$0 - $50,000