Triumph Group Reports Second Quarter Fiscal 2020 Results

($ millions except EPS)

   Pre-tax

  After-tax

Diluted EPS

Income from Continuing Operations - GAAP 

$           54.1

$        42.7

$         0.85

Gain on sale of assets and businesses

(8.0)

(6.3)

(0.12)

Curtailment gain & settlement, net

(14.4)

(11.4)

(0.22)

Legal settlement gain, net

(5.4)

(4.3)

(0.08)

Union incentives

5.7

4.5

0.09

Refinancing cost

3.0

2.4

0.05

Transformation related costs:

   Restructuring costs (cash)

5.8

4.6

0.09

Adjusted Income from Continuing Operations - non-GAAP

$         40.8

$         32.2

$         0.64

FINANCIAL DATA  (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(in thousands, except per share data)

Three Months Ended

Six Months Ended

September 30,

September 30,

CONDENSED STATEMENTS OF INCOME

2019

2018

2019

2018

Net sales

$     772,110

$    855,108

$    1,502,341

$    1,688,008

Cost of sales (excluding depreciation shown below)

622,236

724,474

1,204,469

1,494,688

Selling, general & administrative expenses

66,201

69,551

128,538

151,208

Depreciation & amortization expense

30,219

38,134

74,269

76,945

Restructuring expenses

5,782

11,832

8,746

15,879

Legal settlement, net

(5,400)

-

(5,400)

-

(Gain) loss on sale of assets and businesses

(7,965)

(4,829)

17,837

       Operating income (loss)

61,037

(2,001)

96,548

(68,549)

Interest expense and other

35,400

28,714

62,891

54,206

Non-service defined benefit income

(28,416)

(16,524)

(43,291)

(33,061)

Income tax expense

11,352

485

16,159

1,516

Net income (loss)

$      42,701

$        60,789

$        (91,210)

Earnings per share - basic:

Net income (loss)

$          0.85

$        (0.30)

$            1.22

$           (1.84)

Weighted average common shares outstanding - basic

49,987

49,628

49,927

49,590

Earnings per share - diluted:

Net income (loss)

$          0.85

$        (0.30)

$            1.21

$           (1.84)

Weighted average common shares outstanding - diluted

50,460

49,628

50,385

49,590

Dividends declared and paid per common share

$          0.04

$         0.04

$            0.08

$            0.08

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FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands, except per share data)

BALANCE SHEET

Unaudited 

Audited 

September 30,

March 31,

2019

2019

Assets

Cash and cash equivalents

$        24,852

$         92,807

Accounts receivable, net

342,306

373,590

Contract assets

300,670

326,667

Inventory, net 

454,402

413,560

Prepaid and other current assets

20,854

34,446

Current assets

1,143,084

1,241,070

Property and equipment, net

502,990

543,710

Goodwill

578,916

583,225

Intangible assets, net

405,982

430,954

Other, net

130,831

55,615

Total assets

$    2,761,803

$    2,854,574

Liabilities & Stockholders' Deficit

Current portion of long-term debt

$          7,759

$          8,201

Accounts payable

418,706

433,783

Contract liabilities

276,967

293,719

Accrued expenses

221,966

239,572

Current liabilities

925,398

975,275

Long-term debt, less current portion

1,460,774

1,480,620

Accrued pension and post-retirement benefits, noncurrent

554,400

540,479

Deferred income taxes, noncurrent

21,116

6,964

Other noncurrent liabilities

390,939

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

858,030

867,545

Treasury stock, at cost, 2,386,397 and 2,573,652 shares

(145,496)

(159,154)

Accumulated other comprehensive loss

(565,901)

(487,684)

Accumulated deficit

(737,509)

(794,072)

   Total stockholders' deficit

(590,824)

(573,313)

Total liabilities and stockholders' deficit

$    2,761,803

$    2,854,574

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(Continued)

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

CASH FLOWS

Six Months Ended

September 30,

2019

2018

Operating Activities

Net income (loss)

$        60,789

$        (91,210)

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

Depreciation & amortization

74,269

76,945

Amortization of acquired contract liabilities

(39,556)

(34,038)

Loss on divestitures & assets held for sale

(4,829)

17,837

Curtailment and settlement gain, net

(14,373)

-

Other amortization included in interest expense

6,955

4,852

Provision for doubtful accounts receivable

1,140

212

Provision for deferred income taxes

15,159

-

Employee stock compensation

5,290

5,728

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

Trade and other receivables

29,436

(4,722)

Contract assets

33,930

6,129

Inventories

(41,807)

(49,981)

Prepaid expenses and other current assets

16,209

5,918

Accounts payable, accrued expenses and contract liabilities

(121,112)

(101,460)

Accrued pension and other postretirement benefits

(32,114)

(37,021)

Other

21

3,632

Net cash used in operating activities

(10,593)

(197,179)

Investing Activities

Capital expenditures

(16,995)

(24,254)

(Payments on) Proceeds from sale of assets

(574)

41,037

Net cash (used in) provided by investing activities

(17,569)

16,783

Financing Activities

Net (decrease) increase in revolving credit facility

(147,615)

219,773

Proceeds from issuance of long-term debt and finance leases

546,000

24,700

Repayment of debt and capital lease obligations

(415,447)

(58,823)

Payment of deferred financing costs

(16,275)

(1,922)

Dividends paid

(4,001)

(3,981)

Repurchase of restricted shares for minimum tax obligation

(1,048)

(548)

Net cash (used in) provided by financing activities

(38,386)

179,199

Effect of exchange rate changes on cash

(1,407)

(1,395)

Net change in cash

(67,955)

(2,592)

Cash and equivalents at beginning of period

92,807

35,819

Cash and equivalents at end of period

$         33,227

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FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES

(dollars in thousands)

SEGMENT DATA

Three Months Ended

Six Months Ended

September 30,

September 30,

2019

2018

2019

2018

Net sales:

Integrated Systems

$     285,980

$    260,717

$       538,206

$       501,756

Aerospace Structures

422,579

528,366

841,757

1,060,753

Product Support

67,394

72,199

129,149

138,414

Elimination of inter-segment sales

(3,843)

(6,174)

(6,771)

(12,915)

$    855,108

$    1,502,341

$    1,688,008

Operating income (loss):

Integrated Systems

$      51,472

$      39,866

$        86,244

$         75,275

Aerospace Structures

13,608

(22,744)

25,891

(102,331)

Product Support

10,865

11,514

20,142

19,183

Corporate

(12,044)

(27,371)

(30,439)

(54,948)

Share-based compensation expense

(2,864)

(3,266)

(5,290)

(5,728)

$      61,037

$       (2,001)

$        96,548

$        (68,549)

Operating Margin %

Integrated Systems

18.0%

15.3%

16.0%

15.0%

Aerospace Structures

3.2%

-4.3%

3.1%

-9.6%

Product Support

16.1%

15.9%

15.6%

13.9%

Consolidated

7.9%

-0.2%

6.4%

-4.1%

Depreciation and amortization:

Integrated Systems

$        6,983

$        7,384

$        14,050

$         14,939

Aerospace Structures

21,285

28,294

56,344

57,214

Product Support

1,099

1,664

2,189

3,334

Corporate

852

792

1,686

1,458

$      30,219

$      38,134

$        74,269

$         76,945

Amortization of acquired contract liabilities:

Integrated Systems

$       (9,624)

$       (8,768)

$       (17,749)

$        (17,617)

Aerospace Structures

(12,992)

(8,036)

(21,807)

(16,421)

$     (22,616)

$     (16,804)

$       (39,556)

$        (34,038)

Capital expenditures:

Integrated Systems

$        3,909

$        3,828

$          6,760

$          5,437

Aerospace Structures

4,032

7,077

8,005

17,215

Product Support

633

671

1,666

1,019

Corporate

331

478

564

583

$        8,905

$      12,054

$        16,995

$         24,254

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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. 

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(Continued)

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

Six Months Ended

September 30,

September 30,

2019

2018

2019

2018

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

     Net Income (Loss)

$      42,701

$     (14,676)

$        60,789

$        (91,210)

          Income Tax Expense 

11,352

485

16,159

1,516

          Interest Expense and Other

35,400

28,714

62,891

54,206

          Curtailment gain & special termination, net

(14,373)

-

(14,373)

-

          Union Represented Employee Incentives

5,671

-

5,671

-

          (Gain) loss on sales of assets and businesses

(7,965)

13,118

(4,829)

17,837

          Legal Settlement Gain, net

(5,400)

-

(5,400)

-

          Adoption of ASU 2017-07

-

-

-

87,241

          Amortization of Acquired Contract Liabilities

(22,616)

(16,804)

(39,556)

(34,038)

          Depreciation and Amortization

30,219

38,134

74,269

76,945

     Adjusted Earnings before Interest, Taxes, 

       Depreciation and Amortization ("Adjusted EBITDA")

$      74,989

$      48,971

$       155,621

$       112,497

           Non-service defined benefit income (excluding curtailments, etc.)

(14,043)

(16,524)

(28,918)

(33,061)

     Adjusted Earnings before Interest, Taxes, 

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

$      60,946

$      32,447

$       126,703

$         79,436

     Net Sales

$     772,110

$    855,108

$    1,502,341

$    1,688,008

     Net Income (Loss) Margin

5.5%

-1.7%

4.0%

-5.4%

     Adjusted EBITDAP Margin

8.1%

3.9%

8.7%

4.8%

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(Continued)

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 September 30, 2019

Segment Data

Total

Integrated
Systems

Aerospace
Structures

Product
Support

Corporate /
Eliminations

Net Income

$       42,701

Add-back:

     Non-service defined benefit income

(28,416)

     Income Tax Benefit

11,352

     Interest Expense and Other

35,400

Operating Income (Loss)

$       61,037

$      51,472

$      13,608

$        10,865

$        (14,908)

     (Gain) loss on sales of assets & businesses

(7,965)

-

(10,121)

-

2,156

     Legal Settlement Gain, net

(5,400)

-

-

-

(5,400)

     Union Represented Employee Incentives

5,671

-

5,671

-

-

     Amortization of Acquired Contract Liabilities

(22,616)

(9,624)

(12,992)

-

-

     Depreciation and Amortization

30,219

6,983

21,285

1,099

852

Adjusted Earnings (Losses) before Interest, Taxes, 

   Depreciation and Amortization, Pension ("Adjusted EBITDAP")

$       60,946

$      48,831

$      17,451

$        11,964

$        (17,300)

Net Sales

$     772,110

$     285,980

$    422,579

$        67,394

$         (3,843)