Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group conference call to discuss our Third Quarter Fiscal Year 2019 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 your pop-up blocker is disabled if you are 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 comments by management. On behalf of the Company, I would now like to read the following statement.

Certain statements on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These 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 that the company's reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the press release, which can be found on their Web site at www.triumphgroup.com. In addition, please note this call is the property of Triumph Group, Inc.

and may not be recorded, transcribed or rebroadcast without explicit written approval. At this time, I would like to introduce Daniel J. Crowley, the company's President and Chief Executive Officer and James F. McCabe, Jr., Senior Vice President and Chief Financial Officer of Triumph Group Inc. Go ahead, Mr. Crowley..

Thanks, Kevin, and good morning. The key takeaway from today's call is that Triumph is executing on its fiscal 2019 plans, and positioning the company for a return of profitability and positive cash flow with a mix shift towards higher value more profitable businesses.

Over the past few weeks, we announced the series of divestitures that are a game changer to Triumph. These de-levering actions combined with the operational and business development progress leading upto this point improved the future state of the company, both structurally and financially.

Importantly, the payoff for our restructuring investments that we've made over the last three years accelerates in our fiscal year '20, which begins this April.

I'll share more about these actions in a moment, and I encouraged you to refer to the supplemental slides we have on our Web site as Jim and I review the quarter and discuss Triumph's path forward as a more focused and efficient company.

Overall, the quarter met our expectations, while reinforcing our strategy to exit non-core programs and businesses. In the third quarter, we advanced on key financial and strategic objectives. We reaffirm our fiscal year 2019 sales, earnings and cash guidance.

Integrated Systems across the board once again generated organic sales growth on a year-over-year basis. When accounting for divestures, aerospace structures also generated year-over-year organic sales growth. This is the third consecutive quarter of top line growth for the three segments.

Integrated Systems reported 6% organic increase in sales for the quarter, driven by content growth and rate increases on narrow-body programs. Quarterly organic revenues also expanded for product support by over 5% over the prior year and by 8% in our structures and materials business.

Operating margins on an adjusted basis increase sequentially across all three segments of our business enabled by the strategic actions we took across our portfolio and our continued focus on operational efficiency. We forecast positive cash flow in Q4, which will be the first time in the last seven quarters.

Cash used was better than expected this quarter due in large part to improved working capital, mainly due to the timing of payables and partially offset by additional spending on Global 7500 program, which will seize following the divestiture, more on this shortly.

Key component of the transformation we launched in 2016 included divesting non-core operations, fixing the program backlog, reducing cost and upgrading talent. We advanced on all of these enablers in Q3. We assembled the management team that took control of Triumph's future with the last two P&L executive positions filled in Q3.

At the most basic level, we enhanced efficiency and filled focus and discipline into all that we do and built the pipeline of higher value opportunities to create a future company that can achieve profitable growth. We chartered our path to value to Triumph 2.0.

We undertook $300 million cost reduction initiative with a goal of completion by the end of this year, which we are on target to achieve. The purpose of this effort was three-fold enhanced competitiveness, drive margins and fund growth.

Since that time, we divested 10 companies with approximately $570 million in combined revenues with a minimal loss of EBITDA. Collectively, we streamlined the company by reducing the number of sites from 74 to 40 and shedding over 4 million square feet. We combined with plans headcount reductions in Q4.

We will have reduced total headcount from over 15,000 to just over 10,000. We fully expect these actions will benefit our margins in upcoming periods. Regarding recent divestitures, the decisions to transition to Global 7500 back to Bombardier, and sell our fabrication machine businesses are critical to our transformation.

We are positioning Triumph for the future. One focus on our core integrated systems and product support business units that have higher value-added, higher margins and better cash generation.

On the Global 7500 program, we mentioned on prior calls that Triumph and Bombardier have been engaged in programmatic and commercial discussions on the wing scope of work.

Having mature the wing design and supply-chain and deliver over 25 production wings to Bombardier's final assembly line, Triumph's performance was a clear enabler to the Global 7500s entry in the service in December of 2018.

We're proud of our work on the state-of-the-art wing, and I recently announced agreement with Bombardier marks the successful conclusion of our work on the program. Specifically, Triumph is transitioning the wing manufacturing operations and assets to Bombardier, who will continue operations in the Red Oak, Texas factory.

While we are not to receive any proceeds for this transition, exiting the program freeze Triumph from further investment, significantly de-risk our portfolio, improves free cash flow and expands margins in FY20 and beyond.

In reviewing our options on where to invest our cash, we concluded that the expenditures needed to bring the program through the profitability in the years ahead are better spent in our core business areas. We are pleased to have reached this resolution, which enable Triumph's return to positive cash flow and profitability.

More broadly in our industry today, we're seeing OEMs and suppliers work together to optimize their global supply chains. And in some cases, in source items that were previously procured outside. At the same time, these OEMs are sourcing work with Triumph that's a better fit with our capabilities and strategies.

Additionally, we now the planned divestiture of our fabrication and machining operating companies from our aerospace structures business unit. The impact of divesting these two non-core manufacturing businesses results in reduction in our site count by 11 and our square footage by 1.7 million square feet.

These businesses combined generated approximately $310 million in trailing 12-month sales. The combined effect of these transactions will be neutral to margins in FY20 and beyond.

In total, the gross proceeds from all the FY19 transactions, which include the sale of 11 machine shops, two metal finishing facilities, six fabrication sites, as well as our residual engine APU repair line in Thailand, were $220 million, subject to customary closing adjustments and transaction fees.

The proceeds will support our de-levering initiatives. These Q3 announcements, combined with the preceding transactions and initiatives, reposition our portfolio away from commercial build-to-print and contract manufacturing work to our core integrated systems, which benefits from higher IP and aftermarket sales.

They leave us with a portfolio of businesses more able to consistently generate cash with lower risk and higher growth potential. For context, the portfolio now shifts from where historically almost two third of revenue came from structures to less than 50% over the planning horizon. We expect this trend to continue.

While the divestitures and Global 7500 transition will result in potential one-time losses, we anticipate significant margin expansions in FY20 and beyond. To assist you in modeling Triumph going forward, Jim will provide pro forma trailing 12-month financials reflecting these business decisions.

Turning to other cash uses in the quarter, we now have a line of sight to address the two remaining cash incentive structures programs, mainly the G280 and E2. We're driving to resolve both of these contracts by the end of our fiscal year '19. These actions are not yet included in the pro forma results.

To rationalize the company and meet our $300 million cost reduction goal, we identified an additional 600 headcount reductions beyond the divestitures to improve our EBITDA by $50 million to $75 million beginning in FY20.

As we approach our future stake configuration, we believe these actions will position the company to optimize the opportunities that lie ahead. Turning to new wins, in Q3, we entered into a key strategic channel partnership agreement with Honeywell on the T55 engine program.

Integrated Systems benefits by extending our contract for electronic controls through 2023, which will allow us to expand our aftermarket business. Our product support business has been selected to supply repairs to Honeywell under a long-term agreement across multiple platforms.

Integrated Systems received follow-on orders for the C-130H propeller pumps in support of the Japanese Navy. And finally, Integrated Systems mechanical solutions our business in France was awarded a contract extension for legacy mechanical controls through 2022 on Airbus's commercial fleet.

We're also awarded a three-year contract with a major domestic airline for MRO support of heat transfer products and we significantly extended our nacell and flight control overhaul coverage to an existing agreement with a major freight carrier. Last, we awarded a contract for electrohydraulic power generation and actuation content on a major U.S.

military drone program. In summary, we are maintaining our full year guidance. Work remains in Q4 to close the year. We're committed to reducing inventory and pass through backlog in Q4, so we can enter fiscal year '20 with momentum and fewer headwinds. On our Q4 earnings call in May, we will provide guidance for FY20.

However, to assist you in modeling the new Triumph, we provided pro forma trailing 12-month financials in our materials this morning.

Directionally, these changes benefit all three segment margins and free cash flow over the planning horizon, while avoiding the capital spending required in metallic components and the large negative cash investments required for commercial structures programs. So overall, Q3 was an important step on our path to value.

We are rapidly approaching our future stake portfolio. And after achieving inflection points on revenue in FY18 and cash used in FY19, we look forward to improving margins and free cash flow generation in the years ahead. Jim will now provide more specifics on our Q3, our portfolio actions and the outlook for the full year.

Jim?.

Thanks, Dan and good morning, everyone. Overall, it was a solid third quarter for our core operations and our cash flow was better than we expected.

More importantly, the recently announced divestitures of the Global 7500 program and our build to print machining and fabrication businesses will improve our cash flow and profitability going forward as we planned. Our full-year sales, profitability and cash flow remain on track to meet our guidance.

I will be discussing our consolidated and business unit performance on adjusted basis, so please see our press release and supplemental slides for an explanation of our adjustments. On Slide 9, you'll find our consolidated results for the quarter.

Net sales were up 4% compared to the prior-year third quarter, and all three of our segments generated organic top line growth. This is our third consecutive quarter of year-over-year organic growth across all three segments. Adjusted operating income was $38 million this quarter.

And our adjusted operating margin was 5%, consistent with the prior year. With respect to the segment results, on Slide 10, sales in our Integrated Systems segment increased about 6% organically due primarily to accelerating volume on several narrowbody commercial programs noted on the slides.

Margins for integrated systems reflected higher OEM sales in the quarter relative to the prior year, and reflect costs related to our consolidation of our Connecticut facilities, which we anticipate will be complete by the end of the fiscal year. These consolidation costs reduce our margin by approximately 47 basis points.

Sequentially, the margins improved another 50 basis points from Q2. Turning to Slide 11, third quarter sales for our product support segment were up 5% on an organic basis, driven by stronger demand for accessories and structural component repairs.

The product support operating margins reflect increased sales on next-generation platforms compared to last year. Sequentially, the margins were stable. We expect to improve the profitability on new repair programs as we exit FY19 to be more in line with historical performance. Aerospace structures results are summarized on Slide 12.

After accounting for the previously disclosed divestures, segment sales were up roughly 8% organically. The operating margin included a net unfavorable fuel catch-up of $47 million for the programs we are exiting.

This includes $40 million forward loss charge on the Global 7500 program, $9 million forward loss on E2 jet program and 3 million of the G280 program. On adjusted basis, cash operating margin was breakeven. Turning to Slide 13, free cash use is approximately breakeven at $6 million use during the third quarter and $228 million use year-to-date.

The performance this quarter reflects repayment of customer advances and additional cash investment in the Global 7500 program. This is partially offset by the benefit from timely payments to suppliers. This benefit drove the lower cash used in Q3. We still anticipate Q4 to be free cash flow positive and to meet our full-year free cash flow guidance.

Capital expenditures were $11 million the third quarter and $35 million year-to-date. We invested approximately $18 million in restructuring and $214 million in working capital.

Year-to-date, working capital use was driven mainly by $177 million of repayments to customer advances and $206 million in the Global 7500 program, partially offset by the benefit of higher accounts payable due to $125 million in customer advances not currently tied to deliveries. On Slide 14 is a summary of our net debt and liquidity.

Our net debt at the end of the quarter was approximately $1.6 billion and our cash availability was approximately $417 million, an increase of 8% over the prior quarter. The proceeds from divestitures will be used to reduce our net-debt. We are in compliance with our financial covenants. Slide 15 has the summary of our FY19 guidance.

Based on anticipated aircraft production rates and excluding the impacts of pending divestitures, we continue to expect fiscal '19 revenue to be approximately $3.3 billion to $3.4 billion, which represents the year-over-year increase of approximately 5% at the midpoint of our guidance range. We expect adjusted EPS $1.50 to $2.10.

Our guidance assumes an approximate 17% effective tax rate for the year. Cash taxes, net of refunds received are assumed to be zero for the year. We expect capital expenditures to be in the range of $50 million to $60 million. We continue to expect free cash used for the full-year to be between $200 million and $250 million.

Slide 16 is a free cash flow walk showing the key drivers from our year-to-date to full-year free cash flow. Advance repayments and our Global 7500 program cash use are both substantially complete through Q3. We don't anticipate any significant impacts in Q4. I'd like to take a moment to discuss the Global 7500 transaction.

We do not anticipate a material impact to our FY19 guidance as a result of this transaction. As you recall, we were anticipating cash breakeven a few years out, at chipset 75 to 100.

We estimate that this transaction will result approximately $100 million to $150 million, less cash used in FY20 and approximately $75 million to $125 million less cash used in FY21. This reduction is in support of our stated plan to be free cash flow positive in FY20 and beyond.

Additionally, this program was in a forward-loss position and was dilutive to our margins. We anticipate annualized FY20 margins to benefit by approximately 200 basis points as a result of this transaction. We continue to focus our efforts on optimizing working capital throughout the company.

This is a key area for us as we drive toward positive free cash flow in Q4 and beyond. To summarize for the fiscal year, we continue to expect free cash used in the range of $200 million and $250 million.

Slide 17 has the pro forma trailing 12-month financials when accounting for the divestitures during the fiscal year and the transfer to Global 7500 program. On a pro forma basis, TGI consolidated trailing 12 month sales were approximately $2.8 million, adjusted EBITDA was $186 million and free cash flow used was $72 million.

On a segment level, pro forma financials are as follows; aerospace structure sales were $1.5 billion and adjusted EBITDA for $55 million; grade system sales of $1 billion and adjusted EBITDA of $165 million; and product support sales of $288 million and adjusted EBITDA of $50 million.

This resulted in adjusted EBITDA margin improvement or approximately 270 basis points on a trailing 12-month basis. We are providing this information to assist you in understanding the financial makeup of the business, because of the actions we have taken.

These pro forma results do not include the impacts of future right sizing activities or any resolution of open program actions we are undertaking. We will provide any relevant updates on these initiatives and any potential impact on the financials along with our view of FY20 when we release our FY20 guidance on our fourth quarter earnings call.

Following the filing of our 10-Q, we will be issuing an 8K providing the pro forma financial statements for the nine months ended December 31, 2018 and the fiscal year ended March 31, 2018. As we move through FY19, we remain confident that we will achieve our cash flow targets.

We continue to aggressively manage our cash through outsourcing, contract negotiations and operational improvements. In closing, we remain solidly on track with the goals we set headed into the year. We are pleased with the cost reduction and portfolio reshaping actions we've been taking.

We are increasingly optimistic and confident in our prospects for profit generation and positive free cash flow. Now, I'll turn the call back to Dan and we'll take your questions.

Dan?.

Thanks Jim. In summary, the actions we've taken and those still underway underscore the determination of the Triumph team to deliver on our commitments, complete our turnaround and deliver enhanced shareholder value. There is more work to be done as we close out the year but we're firmly on track for a cleaner FY20.

With that, Jim and I will now take your questions.

Kevin?.

At this time, the officers of the company would like to open the floor to any questions that you may have. We ask that you limit yourself to one question and one follow up to give everyone the opportunity to participate [Operator Instructions]. Our first question comes from Krishna Sinha of Vertical Research Partners..

Can you just help me with the guidance, you said you reiterated guidance and you said it's excluding any of the divestitures.

Can you outline exactly what you're excluding from guidance? Are you excluding the Global 7500 divestiture and excluding the machining and fabrications work that you divested? Or are you just talking about future divestitures that you could make in the fourth quarter?.

The Global 7500, which closed yesterday, is included in the guidance but doesn’t have a material impact for the balance of the year. So without it, we're still within the guidance range. The fabrication and machining divestitures, which have been announced, have not closed yet. So we anticipate they're going to close before the end of the quarter.

But because of the short period between closing and end of the year, we don’t anticipate a material impact from them either..

So there's no implicit change in the guidance hat based on if those were to close.

So in other words, if those were to have closed already, you would have changed the guidance? Is that correct?.

Well, they haven't closed so we haven't changed the specific guidance. I don’t think it would had a material impact by the way. They're important actions -- but they are really taking for their full-year effect and not for the short-term effect this quarter..

And then can you just talk about, I see that your top 10 programs have changed overtime with these divestitures, and you got a lot of narrowbody content that's now shifted upwards.

Can you just talk about your exposure on MAX and Neo versus NG the CO?.

Triumph has got content on both I'll call the legacy variance as well as the new variance. The new variance in some cases are not as high but the story is not fully written, because the OEMs continue to compete subsystems and we're picking up work incrementally.

So, I would say check back with us as those systems mature and get in production to get what I'll call steady-state content on platform. We did lose some structures content. For example, some of the flaps in control surfaces that Boeing decided to enforce but we're getting more on the actuation and systems content..

And then one last one. Is there any more divestitures that you have planned? I think the Global 7500 one was a bit of a surprise.

So can you just talk about what else you could be negotiating with the OEMs or with any other potential acquirees out there?.

In my remarks, I mentioned that the E2 and the G280 were programs that we were looking at. So we're in discussions with the customers on those two programs. And then we're also looking at a couple of more operating company divestitures that could potentially close in Q4 or in Q1 of FY20.

But we're really getting towards the end of the portfolio reshaping both programmatically and from an op-co point of view..

Our next question comes from Sheila Kahyaoglu with Jefferies..

I guess just, Dan, to follow-up on that last question.

How do you think about the aerospace structures business evolving as you divest some of these programs? And then just given some of your recent wins within aerospace structures, how do you bridge that to extending profitability from 3% today to I think 12% in '21?.

So there's no doubt that structures is evolving. And what were big contributors to revenue in the past like 747, and C17, B22, G450, those have sunsetted or in the process of closing out. And in some cases, they're loss making programs.

So the evolution of structures is toward this more profitable core, which is based on the G650 now renegotiated, the work we do on G500 and G600, and military structures. Our TX program it's early in its development but overtime that will add value. We are now wining content on some of the new start programs, such as military drones.

And then we have our program and support Northrop Grumman on the Global Hawk, which has been awarded the Navy Trident Variant follow-on. So you'll see a shift from commercial widebody to more military structures and in some business jet structures as well.

And within the structures businesses is our interiors, that’s where we do installation deducting, that’s a very profitable and positive cash flow business that supports commercial aircraft. We do over million blankets a year from our factories, as well as thousands of different ducting that’s an airplane that distribute there within the aircraft.

And so that's a really good business for us, and it's going to help drive the margin improvements overtime in structures..

So just like you're stepped away from large fuselages or wings to more interiors that's really driving the profitability?.

That's true. I mean, we're a still solid player in the 767, for example. But in that case, we build a very complex wing center body, which is difficult to produce.

Other structures that we do typically I'll call it barrel section fuselages those are going to be done in other locations that are more cost competitive and overtime we'll look to that type o f work..

Our next question comes from Seth Seifman with JP Morgan..

I guess maybe staying on structures, the target you talk about if we assume revenues fairly stable. It looks like about $180 million or so of EBIT there in fiscal '21.

How do we think about how that converts to cash? And what's remaining as a cash drag at that point?.

So Seth as you know the programs that we've divested include Global 7500 have been the biggest uses of cash in that structure of segment. And the things that remain are much working capital efficient. So I think you're going to have a high conversion rate on the EBIT.

And we won't give you more indication to that we can with our FY20 guidance, but with less volatility more stable steady profitability and less working capital need for structures going forward..

And then when you think about in Integrated Systems return on sales going from the 15 year to 25.

How much would you say that the costs related to your transformation efforts are weighing down the margins in integrated systems this year?.

I think it's the reduction from our, I'll call historical levels of profitability 19% to 20%, is probably half related to restructuring and half related to some performance issues. And two of the 15 factories that were laser focused on to a fix.

And once those factories catch-up with the backlog their both shops that are ramping-up quickly with rate and they've taken on a lot of new work. And so we spent more money to recover that pass due backlog, and that's been a contributor to margin erosion as well. But it's a fixable challenge that we're all over with our customers.

And then the other part is the restructuring, which will sunset in the next six to 12 months..

And I think we're going to see an increase in the aftermarket piece really be growing that as a percentage of our total overtime, and that’s going to help margins as well..

Our next question comes from Michael Ciarmoli with SunTrust..

Maybe just a follow-up on that point on the product support and aftermarket, I think Dan you may have mentioned improving margins on some of the new repair programs.

I mean what are you guys doing differently to drive that margin expansion there? Is it just more efficient, because it has to do with the contracting terms? Maybe if you could just elaborate on that..

So we have a new EVP we hired for that business, Bill Kircher, and he's really helping a lot. He came from Pratt & Whitney, he ran their Asian MRO business. And as we've looked at how we supply products to customers, we decided to invest cash in rotable inventories. And we can quickly turn for their on-demand repairs.

Secondly, there are certain products that we can overhaul and repair parts and take parts from use thrust reversers for example or landing gear that are serviceable. And in doing so meet the mission requirement, but do it at a lower cost and higher margin.

And customers are fully on board with that approach rather than buying all brand new products when serviceable parts will meet the need. And then the last piece of margin expansion is increasing revenue with existing customers. We do a lot with FedEx, UPS, Southwest American, but we could do more.

And the incremental cost of supporting the repair needs are lower than acquiring new customers. So it's all things together but it's taking, I'll call it, a traditional repair overhaul business and taking new approaches to the actual inventory repair approach and then partnering with the carriers..

And then just one more on this margin walk that you detailed on Slide 7 into fiscal '21. Should we think about a linear progression there? I mean, I know you didn’t give fiscal '20.

But are there any items, more restructuring spending or adjustments we should be thinking about in fiscal '20? Or is it just going to be some of those existing programs you have, you take our cost? Should we just expect a continuous margin improvement toward those '21 targets you've laid out?.

Yes, I think it's a fairly linear trend. As we put the restructuring behind us and we get more momentum from our operational improvement, there is not a single step function where an individual contract suddenly becomes the dominant contributor.

Jim, your thoughts?.

Yes, there's diversification in the actions we're taking. So I think it will be smooth improvement overtime..

Our next question comes from Robert Spingarn with Credit Suisse..

Jim, you gave us the cash flow release figures for 7500 for next year and the year after.

But how should we think about advanced payments during that period given that they were a big drag in '19? And then are there any other major moving pieces cash flow wise that we should think about as we view longer-term?.

We have benefitted from advances in the support from our customers, which we appreciate. The current expectation is that advanced repayments will be about $80 million next year, and they will be about $62 million the following year. And then I mentioned we have another $125 million of advances that we haven’t scheduled repayment of yet.

But the customers are very supportive and flexible with us on the repayment schedule. Our cash flow positive assumes that we will repay that $80 million next year..

And then Dan on the strategic side just curious your exit from machining. I'm trying to reconcile that with your largest competitor in structures building that business, or are they just very different businesses? I want to just understand the logic there..

And I know which competitor you are referring to. When I came here and I looked at the portfolio of 75 locations and I looked at where we can afford to do the modernization and capital upgrades and candidly where there was macro trends towards off-shoring, and also consolidation.

I concluded that build-to-print, contract manufacturing really wasn't the Triumph's forte, it wasn’t going to be an area we could be competitive at. And yet there are lot of companies out there that this is their mission and this is what they do well. And they have the capital to invest and upgrade these machines overtime. So we've exited it.

In the case of the competitor you are referring to, they largely do that work now, I believe in Malaysia. It's a vertical integration play so they can provide to feed to their own shops. Many of these shops that we had were merchant suppliers that were competing broadly across lots of platforms, not predominantly feeding into Triumph's facilities.

So our need to maintain them in the portfolio I think was lower than other competitors. So the owners of these new facilities are the right owners. In many cases, they already owned a lot of shops. They are getting scale benefits and are committed to investment and supporting the customer base, including Triumph but these suppliers to us.

But doing this allows us to reduce our debt and then begin to reinvest in systems and aftermarket. And system hasn’t been invested in at the levels we would like over the last few years, because the money going into structures and we're looking forward to reversing that trend..

Our next question comes from Myles Walton with UBS..

To start on the fiscal '20 cash flow being positive. I think you've prior to the G7500 had talked about it also being positive. And then you obviously mentioned that your previous win had $100 million to $150 million of cash used on the 7500 been in fiscal '20.

So I'm just curious is the $100 million to $150 million now the new baseline or did the other things move against you?.

We have to take actions to achieve our plans. And these actions including the 7500 transition were all in support of our plan to be cash positive, so it's not incremental to it. These are necessary actions and they are going to get us to cash positive..

So when you previously talked about cash positive, you had already considered the disposition of the 7500 in that?.

That was one of the options to get there. There could have been a lot of other outcomes here, but this is the one the path we took..

And then the payables benefit that you put in the Slide 13.

Is that something that reverses fully on you in anyway? Or that just something that's in absence of that benefit we should think about going forward?.

Yes, included in the payables is the $125 million of unplanned advances that will be repaid at sometime in the future, probably few years out. So we benefited this year in that but we don't expect any more of that going into next year. But that's why payables are increasing during the year..

And then just one last one on margins just a clarification, so the 1,000 basis points of EBIT margin expansion, it's implied over the next two years. Is that likewise drop through on EBITDA margins? I know obviously you could have contract liabilities or other things moving around.

So I mean just to clarify or confirm that?.

Yes, it's too early to give you I think a good information on that. Look for May when we give our guidance, we'll try to provide more clarity on the dropdown on that..

Our next question comes from Cai von Rumohr with Cowen..

This is Jeff Molinari on for Cai. I'd like to ask about the remaining cash flows in programs within structures.

Can you walk us through the expected drags for the G280, the Boeing 747 program and E2? What do you expect that drag to be going forward? And how you will get those to be positive, or when do you expect to exit those?.

I'll start with 747. At one point Triumph made I think seven fuselages per month. And I think you all know that rate has dropped to about one or less per month. And we have line of sight now to completion of our contract obligations on that, and we're fully supporting Boeing.

In fact, we're building a little bit ahead of need in order for them to maintain a buffer stock and for us to exit the facilities the work has performed today. So the cash remaining on that program are some incremental recurring losses. And then the cash the windup shutdown to the facilities, so we have that bounded in our forecast.

On E2 and G280, and we did the outsourcing decision with Korea's ASTK on E2, that's going very well. They just conducted a review with the Embraer customer went very well. We'll continue to evaluate the best long-term owner for that program.

But we're fully supporting them and excited about the progress that Embraer is having in interest in the platform. G280 it's a program that was known to be a loss making program when it was transferred from Spirit. We've done all we could to reduce that loss. We delivered quality wings to IAI whose is the end-user and customer.

And we're in discussions again with that program. Given Triumph shift away from, I'll call it, large commercial structures towards our systems and aftermarket, what's the best plan for that. Because it's my understanding that IAI and the Gulfstream have big plans for that platform longer-term.

So your reach points periodically on programs where you reassess based on the future forecast, is the current arrangement optimal, is there something that’s better. So I'd say look for feedback on that in the next quarter..

And if you were to exit those, what would the benefit be on removing those drags.

Could you quantify that anyway either altogether or separately?.

So on 747, I think when we provide our FY20 forecast that will give more visibility to the run out on that program. And on E2 and G280, those transactions are different. And so the financial consequences will be different. And I'd ask that you just give us time to complete them and then announce the results.

But you could expect them to help us reduce cash losses and generate proceeds as well..

Our next question comes from the David Strauss with Barclays..

On the G7500 transfer, is there any compensation for the working capital that was in place that was in flow, or is that all in included in the net zero proceeds?.

During the last couple of quarters, we talked about how we had favorable payment profiles and progress payments we were getting, and we get to keep all those as part of the process. But there was no consideration in closing for any of the working capital but we did paid for a good portion of that as progress payments leading up to it..

And so do I interpret the pro forma cash use 330 actual versus 72 pro forma.

So including that it looks like there was about 50 if I just exclude the 7500, the businesses, the divestitures in total, the cash use is in the $50 million range?.

Yes, that's roughly correct. I think what you're going to find in our 8K is you'll get more clarity around the store impact from these, both for the nine months ended the December and the full fiscal year last year.

So will file an 8K with pro forma financials taking out, not only G7500 but the pending divestitures as well, and you will see that in next day or so..

So are the pending divestitures in this pro forma $72 million burn or not?.

Yes, they are..

And then last one I had on pension. How are you thinking about your returns year-to-date fiscal year-to-date, how you're thinking about the potential pension contribution in fiscal '20.

What you're contemplating?.

We're doing our end year review of the plans, so getting prepared for our fourth quarter disclosure where we will give the new five-year funding forecast.

So you can see in the supplemental table Page 22 of the presentation, our cash pension contribution is $5 million and the OPEB contribution is $12 million for FY18, and it was down to $2 million and $12 million in '19. And going forward, I think you look to last year's disclosure, there is some increases in funding but it's very manageable.

And we don't pay attention to short-term changes in the assets, because the fact is the assets can change but also the liability changes. And we have to wait for the actuaries to do their work annually. And then we'll see what the funding forecast is going forward. So it's not something that we're concerned about..

The next question comes from Peter Arment with Baird..

Dan, given the pro forma reset that you provided, and thanks for all the details, the $2.8 billion.

How are you thinking about organic growth from that going forward just given all the changes?.

The organic growth that we've been focused on since I got here is really starting to follow through. If you looked at some of the early slides in the back, we showed the quarter-over-quarter and year-over-year growth across all three segments.

And we're especially excited about book-to-bill and our integrated systems business, because that's the leading-edge for us and it's our biggest source of value. But on Page 4 of the deck, you can see in the quarter we were 5% to 8% depending on the business unit and growth.

And for the full year, those ranges were 4% to 9% with the higher ranges being in integrated systems. So we think we can sustain that. And one of the side benefits of this portfolio shaping is management bandwidth and the ability to focus on residual business.

We put a tremendous amount of time and energy to resolving contractual issues and pricing challenges in the structures business for the last three years.

And with a reduction in the number of sites from 75 down to about 40 and fewer operating companies and fewer loss making programs to work through with our customers, our ability to pivot back to our growth agenda and to our margin expansion agenda is going to be greatly enhanced, and we're all excited about that for FY20..

And just the clarification, you mentioned I guess it was $220 million in total proceeds.

Is that tied to the $570 million in revenue that you had mentioned on the divestitures, or are those numbers different?.

I think the $570 million is all divestitures in the last 12 months or so. The $220 million is just for the most recent transactions we've done, which are machining, fabrication, our Thailand, our RPL facility. And that's gross proceeds and that proceeds will be a little bit less, but it's still the right thing to do.

We really had no reduction in EBITDA to speak of as we exit our business, and it's the right thing for Triumph and our shareholders..

Our next question comes from Ken Herbert with Cannacord. .

I just wanted to follow-up on one of your earlier questions.

When you start to provide some of your pro forma '21 margin assumptions or opportunities, how much of that on the revised base of the business is captured in, the improvement is captured in the contracts you are signing now versus how much is maybe based upon incremental cost reductions? I guess I'm just trying to get out with the new business you are announcing now and the wins you're pulling through, both in structures and obviously integrated systems and across the board.

Are those materially supporting the margin expansion? Or is there really further things from a restructuring you just cost takeout push you need to execute on?.

You're asking me to integrate a lot of data across lots of contracts, but it's a great question. And I would say that a lot of the follow-on work that we're winning already carries certain margin.

And when we talk about narrowbody ramp rates, that's mainly extending work we already have for which the developments has been completed and they're in rate production. So that's a big tailwind for us for margin expansion, especially as we put the restructuring cost behind us.

And then you asked about are we also doing cost takeout that enhances margins, absolutely. In Q3 in my comments, I mentioned that we'll be doing a 600 person reduction, which is on the order of 6% of our workforce in the next 60 days or so.

And that reduction, although painful, helps to position the remaining company after these divestitures for improved margin performance over the forecast period. Just one last contributor is Triumph historically had a higher contribution of spares and aftermarket sales.

As I've worked with our new leaders to look at recapturing more of our tail, our aftermarket, we're now doing more collaboration between the product support and integrated systems to go after not only of their products that we produce where the OEM for but other manufacturers parts.

And this Honeywell partnership we announced in period allows us to do MRO on other manufacturers' hardware as well. So look for aftermarket also contributed to margin expansion..

And Dan, strategically, it sounds like you're talking about a shift towards more when I think about new business, certainly more on the military side, certainly more maybe on the business jet side selectively. How much are you strategically deemphasizing? Certainly wide-bodies or even commercial transports as part of that mix moving forward.

How should we think about the capture rate in those areas relative to military for instance?.

So widebody businesses has largely been sourced, there is no new start other than potentially 797. It's mostly contract extensions with existing suppliers. So when we look at our -- call it our annual operating plan horizon, we just don't see any new widebody problems that would change Triumph's fortune.

And candidly, if they were out there we wouldn’t necessarily be producing in the U.S. just because of the trends and labor costs. But the team we have is doing a great job of executing the backlog.

We do have good widebody content on 767 as I mentioned and now with the successful rollout of the first two tankers at Boeing, we expect those rates to go up, as well as for the freighter variant. But you're right.

Strategically, we're focused on military and complex structures that don't require the level of non-recurring investment that we had to do for the programs like Bombardier or in the past 747. So that's our stated strategy.

And now that are revenue is trending towards 50-50 systems and aftermarket versus structures that trend will continue towards a bias towards systems and aftermarket..

Our next question comes from Noah Popanak with Goldman Sachs..

So if I'm looking at Slide 16 with the 2019 free cash flow breakdown. And if I just sort of everything that’s in the zone of 200, if I just round it to 200 to make the question here a little easier.

So a use of $200 million for the year as reported, if I add back the advances a little less than $200 million, but just call it $200 million, it gets to breakeven.

And then if I add back the Global 7500 little more than $200 million, but call it $200 million, gets me to I think a positive $200 million, which for some time you have been discussing is a normalized level ex-advances. And so I've read that slide as I should take that level and then have a view on things that grow or decline in the future.

But your answer to Myles question confused me in saying that the 2020 just being positive included the release of the Global 7500. Does that imply that something is worse elsewhere in the business or do you see what I'm saying there? I can't square those two items..

There is a lot of onetime items in the last couple years, and there's fewer and fewer of them in this last quarter and there will be going forward. So we did benefit from things like increases in payables during the year as we talked about earlier today.

But what I'm telling you is that our goal to be cash positive next year, the actions we took with the Global 7500 and divestitures, were all actions that were necessary to get to that goal and they weren’t incremental to do it. So there is still one thing I can point out, there is a lot of moving parts.

I think we can help you with your modeling questions subsequent to this, but the data is all there. We're going to put our FY20 guidance in May. I think if you go back to the core operations and build up from a zero base, you're better off than trying to role forward from the years that had a lot of noise in it.

So we can't give you a more crisper answer to that, but it's not a simple story..

Is there a new number that you think of as the normalized ex-advances recurring free cash flow of the business as that's associated with the 21 numbers you've given today?.

Not yet, I think that's we’re summering a save for May, because we still have actions going on to achieve our plans going forward. Our plan is not approved yet. We have a draft plan we're working on. And as we do all those actions, we want to come back to you with guidance that we have high confidence in that..

The good news is, Noah, that we don’t have some of the big swingers on cash that have really made it difficult for us to that question on recurring, loss making programs, restructuring costs, advanced repayments. Now that those things are damping out, I think all of your modeling can become easier..

You are narrowing your range of outcomes I suppose. Just one other thing I wanted to ask you. In a few of the sales and divestitures you are making, you've made the comment of finding a better owner or the company that's taking it being a better owner.

In the case of the 7500 win, do you think the OEM is a better owner? Do you think they'll have a better chance of continuing the cost there as they take cover that product?.

Well, first of all, the division of Bombardier that’s buying our Red Oak facility, the program is there aero structures business from Belfast, which has a track record of structures, development and production that is very good. And their leaders are on-site now in our plant as they close the transaction yesterday it's got a seamless transition plan.

And so I think they are going to bring a lot of capabilities. They also, because they are buying for their legacy business jets at a very high rate, they have economies, scale and supply chain scale that allows them to negotiate material prices also very tightly.

And then as they evolve the design, being the design authority as well to production source, they can incorporate change without going through the arm's-length transactions that they've had to with the third party. So there are several things that I think position them to be successful. But I'd ask you to pose that question to Bombardier.

But we're not concerned at all about the transition. We're proud of what we've done. This program three years ago was really in the place where success was not given, it's an outcome for us to work together to certify the wing and get entry into service and ramp-up the production line.

Triumph worked to ensure we protected our customers just as we've done with G650, E2 and another programs. And that's part of our customers value in Triumph is that we don't leave them hanging, we support them. And if we're going to make a transition, we get into a natural breakpoint and then we do a deal that's acceptable to both parties..

Ladies and gentlemen, this is all the time we have for questions today. This concludes Triumph Groups third quarter fiscal year 2019 earnings conference call. This call is scheduled with a replay. It will begin today at 1:30 PM Eastern standard Time and run until 14th of February till 11:59 PM Eastern Standard Time.

You can access the replay by dialing 1800-585-8367 and entering access code 9986125. Again, you can access the replay by dialing 1800-585-8367 and access code 9986125. And ladies and gentlemen, you may now disconnect..