Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group Conference Call to discuss our First Quarter Fiscal Year 2021 Results. This call is being carried live on the Internet. There is also a slide presentation included with the audio portion of the webcast.

Please ensure that your pop-up blocker is disabled, if you're having trouble viewing the slide presentation. You are 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 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 forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Triumph's actual results, performance or achievements to be materially different from any expected future results, performance or achievements expressed or implied in the forward-looking statements.

Please note 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 website at www.triumphgroup.com. In addition, please note this call is 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; James F. McCabe Jr., Senior Vice President and Chief Financial Officer of Triumph Group Inc.; and William C.

Kircher, Executive Vice President Triumph System and Support. Go ahead Mr. Crowley. .

full authority digital engine control systems or FADECS for use in the U.S. Army's UH-60 Black Hawk and AH-64 Apache fleet; landing gear actuation systems on the Airbus A320; and mechanical flight controls for multiple commercial helicopters, including the Bell 429 412 and 407.

Triumph is also designing products for next-gen military fleets and developing leading-edge thermoplastic products and processes. We are widening our customer base.

Today Triumph has over 100 OEM Tier one and Tier two customers along with over 100 airlines and 70 third-party MRO customers reducing the impact of potential declines in any one market segment.

For context, in fiscal year 2020, only one program exceeded 10% of sales the Boeing 767 at 11% and only two customers exceeded 10% of sales Boeing at 34% and Gulfstream at 12%. Our Boeing sales included over $100 million to Boeing Defense Space & Security, primarily from Systems and Support consistent with our strategy to expand military work.

As we set out to do in 2016, military platform contribution has increased as a percentage of sales and now represents over 30% of our total backlog as of June 2020.

On Slide 7, the two recent divestitures I mentioned build on earlier exits of Machining and Fabrication and large structure sites and represent another step in exiting non-core build-to-print Structures operations to provide additional liquidity following close.

Combined with sunsetting programs and other planned transactions, we expect to complete our strategic reshaping of Structures this fiscal year.

Looking ahead, while we continue to execute on our operational priorities, we know the recovery of our commercial volumes will closely correlate to that of the airline industry and the sustained abatement of the virus across our country and the world.

Turning to Slide 8, I provide our take on the commercial market conditions and how they impact Triumph. Over the last 90 days, global airline ticketing return to service flight hour utilization and load factors have all improved.

While approximately 34% of the global fleet remains in storage, increased traffic in Asia and Europe has helped soften the severe MRO downturn in the U.S. While the OEMs predict it will take three to four years to see recovery in the U.S.

to 2019 levels of commercial traffic, OEM production rates and MRO, Triumph is dealing with the decline by pivoting to international markets and defense, where DoD budgets continue to see strong government support. Turning to Slide 9. Triumph secured new business across multiple military services and industrial markets spanning the U.S.

Army, Air Force, Navy and Marines, foreign military sales, commercial, nuclear, rail and space. Our diverse customer base is the source of strength and provides multiple avenues for success. Triumph's win rate on competitive programs for the quarter exceeded 80%.

Military backlog grew 8% year-over-year as measured at the end of Q1, as Triumph's military content continues to grow. It now represents more than 50% of our total pipeline of active opportunities.

As shown on Slide 10, we congratulate Boeing on the recent F-15EX order where Triumph has significant IP-driven content per aircraft on the legacy platform.

In the quarter, we also expanded our scope on the T-7A Trainer by securing a flight test integration package building on the substantial Structures and Systems content on this important new aircraft. Before I turn it over to Jim to recap our financial results, I know there's a lot of interest to what Triumph is seeing now in MRO demand.

Last year, we combined our Systems and Aftermarket businesses and saw early benefits in Q4. I invited Bill Kircher, our Executive Vice President for our Systems and Support business to share some insights in this area.

Bill?.

Thank you, Dan. I'm delighted to be speaking with all of you about the great things happening in Triumph Systems and Support. We are very focused on growing our share of the military market as Dan has talked to in prior quarters. There are two themes that are apparent in TSS' strong wins in the military segment.

leveraging our long relationships with the military customer and our strength in engineering. To that end I am pleased to note that our military backlog grew 13% year-over-year and now accounts for 52% of Systems and Support total backlog. Overall military segment results are up 26% to prior year.

In the quarter, we experienced substantial backlog growth on multiple platforms including V-22, F-18, Apache and E-2D. We secured the second multiyear award for the E-2D, Electromechanical Interference Reduction System or EMIRS, actuation and control package a complex system designed and built by Triumph.

When coupled with our substantial existing content on the E-2D this is certainly a premier platform for Triumph. Direct sales to the U.S. government were up 29% in Q1 versus prior year benefiting from our T700 engine controls program as we upgrade fuel controls on the Black Hawk and Apache fleets.

We also secured a five-year MRO contract for Chinook fuel controls through the U.K. MOD, heat exchangers on Northrop Grumman's Next Generation Jammer and a five-year contract with Honeywell for M1 Abrams mechanical controls. Turning to the commercial market.

We secured wins across multiple segments including commercial transport aircraft, helicopter, rail, nuclear and space. We won a five-year contract for Bell collectives and cockpit controls spanning multiple platforms.

We continue to grow content on the Airbus A321XLR having recently been awarded a service panel assembly out of our German factory building on our recent uplock award. Our Systems products have infrastructure applications as well. We were awarded a small rail transport derailment detector package out of our business in France.

Finally, we continue to see good results from our commercial cargo segment with Q1 fiscal 2021 sales to UPS and Atlas up 16% to prior year Q1. With those highlights, I'll turn it over to Jim. .

Thanks, Bill and good afternoon, everyone. Our first quarter results were significantly impacted by the COVID-19 pandemic, but we acted with velocity to mitigate its impacts. Our actions are positioning Triumph for the lower production rates and reduced aftermarket demand we have now planned for this year.

Because we have a March fiscal year end, we completed our annual operating plan after the pandemic started. Therefore our plan includes actions and target cost levels that reflect the new market conditions. Consequently, our first quarter results met our Q1 plan and we are on track to achieve our full year plan.

We're already seeing signs of both stabilization in production rates and improvement in aftermarket demand. The demand profile we're seeing is in the range of what we had planned and we do anticipate improvement in cash flow and margins as the year progresses.

I will discuss our consolidated and business unit performance on an adjusted basis so please see our press release and supplemental slides for the explanation of our adjustments. On slide 11, you will find our consolidated results for the quarter.

Excluding divestitures organic net sales decreased only 29% over the prior year quarter including the planned reductions for sunsetting and transitioning programs and Structures.

Revenue declined organically in both segments due to pandemic-driven production rate decreases in commercial programs and aftermarket demand partially offset by an increase in military revenue.

Despite the headwinds, adjusted operating income was $15 million this quarter and our adjusted operating margin was 3%, so we are profitable on an adjusted basis although down from last year on the lower volume.

With respect to the segment results, on slide 12, net sales in our Systems and Support segment decreased 24% compared to the prior year as headwinds from the pandemic were partially mitigated by military growth. Adjusted operating margins for Systems and Support were down on a decreased volume.

Margins reflect a 13% decrease in MRO and aftermarket sales in the quarter relative to the prior year. Our restructuring actions impacted the segment's margins this quarter by approximately 110 basis points.

Systems and Support's recent wins in military and adjacent markets along with the cost reduction actions will help improve margins as we progress through the rest of the year.

Summarized on slide 13, first quarter organic net sales for our Aerospace Structures segment were down 34% due in part to planned sunsetting and transitioning programs as well as declines in commercial programs.

Aerospace Structures operating margins were impacted by a $252 million non-cash asset impairment charge and $7 million in restructuring costs in the quarter. Excluding these impacts, operating margin would have been about breakeven.

As reported, both sales and margins were unfavorably impacted by government-mandated and customer-driven facility shutdowns early in the quarter, but our facilities are all now operational. This group is continuing to aggressively reduce costs including the recent exit of its Texas headquarters.

Aerospace Structures also remains on track to complete production on the G280 and 747 programs this year. These actions will benefit margins and cash flow in fiscal '21 and beyond. Turning to slide 14. The pandemic caused a temporary increase in our working capital usage as we adjust our supply chain to the new lower demand.

Our $205 million of cash use in the first quarter was slightly better than planned and driven by decreases in accounts payable and accrued liabilities, including $10 million in liquidation of prior customer advances and $28 million of cash use on the G280 program, as well as temporary increases in inventory and $15 million of restructuring costs.

Capital expenditures were $8 million in the quarter. We remain focused on aggressively managing our cash and liquidity. Our first quarter cash use is not representative of a pro rata share of our annualized cash flows.

This is due to the seasonal nature of our operations and cash flows, the timing of our cash using program exits, as well as the pandemic business disruption and temporary inventory increase as we adjust to the new lower production schedules. These Q1 working capital headwinds are forecast to reverse beginning in the second half of the year.

On slide 15 is the summary of our net debt and liquidity. Our net debt at the end of the quarter was approximately $1.5 billion. Our combined cash and availability was $354 million. And we are complying with all of our financial covenants. We forecast to have sufficient liquidity through year-end even with no further liquidity-enhancing actions.

Concurrent with our Q1 results, we're also announcing tonight our intention to raise $600 million of first lien notes in a private placement. We intend to use the proceeds to repay and cancel our revolver and add cash to the balance sheet.

The refinancing is intended to improve our liquidity and provide greater flexibility as we navigate the current commercial market downcycle. Slide 16 is the summary of our fiscal year 2021 guidance.

Based on anticipated aircraft production rates and including the impacts of pending program completions for fiscal year 2021, we expect revenue to be approximately $1.8 billion to $1.9 billion.

We expect free cash use for the full year to be moderately higher than Q1 with less cash use in Q2 and the second half breakeven to modestly positive free cash flow. Our backlog is resilient because of the diversity of our markets, customers and programs we serve.

This is an important strength in today's operating environment and makes our revenue more stable and predictable. Our cost reduction actions have been substantial and we continue to identify new opportunities to improve our competitiveness and add value for our customers, especially with intellectual property in our core businesses.

We forecast adequate liquidity and covenant compliance through year-end, yet continuously evaluate additional actions to enhance both. The measures we have taken will help us manage through this downturn and we anticipate quarter-over-quarter improvements in our results this year. Now, I'll turn the call back to Dan.

Dan?.

Thanks, Jim. In summary, Triumph's product and platform diversity supported by increased military sales and stable gross margins, provided stability through an incredibly difficult Q1. As we manage through the recovery, we remain focused on the safety of our employees, enhancing liquidity and collaborating closely with our customers.

We continue to see the benefits of our cost reduction actions and anticipate quarter-over-quarter growth in Systems and Support, and recovery in margins across the enterprise. The announced Structures asset sales demonstrate progress on our goal to exit non-core operations and to enhance liquidity.

Four months into the pandemic, the reduced market volatility has provided us with clarity to share fiscal 2021 directional guidance. Though, uncertainty remains, we are committed to improving profitability and cash flow and becoming a more predictable business.

Fortunately, we entered this fiscal year with solid momentum from which to build and Triumph will come through this crisis as a stronger company. Kevin, we're now happy to take any questions..

[Operator Instructions] Note that, due to the storms on the East Coast, there is a chance of a power outage. If power is lost, please start dialing in again or sending any follow-up questions you may have by e-mail. [Operator Instructions] Our first question comes from Myles Walton with UBS..

Hey, good afternoon or good evening, actually. I was wondering, could you give us a sense as to your comfort level with the production schedules that are being handed to you by the OEMs at this point. Have the planned builds that have been handed to you stabilized? I know that, they've gone through a number of iterations.

And obviously, even some suppliers have said where their planning is and where their assumptions are haven't yet caught up to where the manufacturers have just recently announced in the last week or so some changes.

So have all the baseline or all the announced new rates been incorporated into your look?.

They have. This is Dan. We track 30 separate programs that generate most of our revenue. And on the defense side, as well as the commercial side Airbus and Boeing, we're pleased that Boeing kept our largest program the 767 at the current build rate of three a month and same with 747, we're running that out. We want to finish that program.

There have been reductions in 787 and 737, but we had not been building ahead so many companies were at risk, because they were ahead of them and we were able to dial back capacity consistent with that. Very encouraged that Airbus is committed to support us in at least 30, a month on the A320 and with plans to go higher.

And then on the defense side, we continue to track V22, where we have a lot of content the E-2, CH-53, F-35. So one of the nice things about Triumph is we're spread over so many platforms, if one goes up or down, we're not particularly concerned. You asked about stability and are we seeing the rates stamp out. They are.

Through March and April and May, it was very difficult especially on the commercial side the OEMs were still in discussions with the airlines and the freighters. And so it was difficult for them to share with us what their true needs were. And we're beyond that now. The rates are stabilizing.

And barring any new headwinds, these rates are what we're going to use for planning, and we've adopted conservative rates for the balance-of-the-year forecast..

Okay.

And maybe just for a second question on the – on some of the divestitures that you've announced so far could you size the revenue impact to the year assuming they were to close as you anticipate? And also, any push or pull as it relates to the cash flow that you're talking about for the full year being I guess modestly above the couple of hundred million used in the first quarter?.

Sure, Myles. This is Jim. I'll take that. The estimated proceeds upon closing of the two transactions we just announced that's Composites and G650 is in the range of $100 million in total. The timing is expected before the end of the calendar year, hopefully sooner.

And in terms of sizing the sales in the quarter were around $50 million for both of those entities. But our guidance, will consider whether there's any changes necessary when we actually close.

So the guidance we gave of $1.8 billion to $1.9 billion for the year includes those businesses and then we'll reevaluate when we have a closing whether it materially changes that and we have to update. But these businesses are with better owners now. We don't expect it will have a material impact on our cash flow or the guidance we gave on page 16. .

Thanks for [Indiscernible]..

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

Yes. Thank you very much.

So your cash flow if we kind of go over I think it's slide 16 and all of your indications that cash and tax interest are flat in the second half, CapEx is stable, it looks like the only way you get home to having slightly positive cash flow in the second half is if you had a major uptick in terms of accounts receivable and contract asset on the plus side.

Is that the way you get there, or is there something that's not in the model that kind of gets you to positive cash flow in the second half?.

Yes. Cai, it's Jim. You're right. The working capital reversal is a temporary increase in working capital from the sudden change in demand and that will begin to reverse itself in the second half. I know on page 16 we broke out the payables separate from the AR and inventory so it's hard to tell what the net effect is.

But I'll tell you that the net effect of those is they're a use in the second half. In the second quarter, it is less of a use than the first quarter. And it turns positive in the second half. So it's really a normalization of working capital as we stop buying to catch up with the reduced demand..

Yes. And last one comp on divestitures, you had mentioned along that it's $50 million in sales per quarter.

What's the approximate comparability before you lost all those operations?.

So I don't have an estimate for you. I think we'll look if we can disclose any more of that upon closing of those, but I don't believe it will have a material impact on any guidance we provided. They weren't the best contributors to us and they're going to be better with the new owners..

Your next question comes from Sheila Kahyaoglu with Jefferies..

Hi, good evening, Dan and Jim. Thank you for the time. I just wanted to follow up on Cai's question. In terms of the Q1 free cash flow usage in the quarter, it was a lot of accounts payable that impacted it.

Can you talk about what's driving that improvement? I just want to clarify that a little bit more?.

Yes. As I was saying separating payables from inventory and receivables can be misleading. When you combine the 2 it was a combination of inventory that was not shipping because we didn't have demand for it. And then we weren't buying new inventory to the extent we could avoid buying it. And therefore payables were being paid off for the older payables.

So that's why payables are going down as we're not incurring new ones and we have to pay the ones that come due. And the inventory is building up until we can start to ship it because of the lower demand. So over the course of the year, that's going to reverse itself.

And that's why we're going to be cash positive on the core working capital in the second half of the year..

Understood. And then just on liquidity needs, the proceeds are clearly helping and coming in even in a very tough market so nicely done and then you just raised another $600 million in a private placement.

How should we think about liquidity needs from here and ongoing financing?.

We have sufficient liquidity to meet our anticipated needs for at least the next 12 months without any transaction. And I think the announcement of the transaction will speak for itself.

But we're confident in our liquidity and everything we're doing is to make sure we maintain adequate liquidity to service the business with a little bit of a cushion in this environment.

But our diversity as Dan mentioned earlier is really a strength right now and any impact we're seeing on the commercial side we have the benefit of some military growth and the freighter markets we serve as well. So as I mentioned, we're seeing stabilization of the production rates. We're seeing modest increases in MRO demand at least to our shops.

And we're looking forward to improving our cash flow in the second half of the year..

Okay. Thank you..

Thanks. Thank you..

Our next question comes from David Strauss with Barclays..

Thanks, good evening everyone..

Good evening. .

I wanted to ask about the I guess the future state of the interiors business given the -- what's going on in the market since the first time you broke that out separately. I think you've been talking about that business being $300 million in revenue and mid- to high-teens adjusted EBITDA margins.

What do you think that business looks like once it's on its own given what's going on with the market?.

So interiors is the factory within Triumph that's been most affected by the MAX rate cuts. The workforce in Mexicali produces one million blankets and inducting per year for Boeing and Spirit. And so, we've scaled back the workforce substantially consistent with that and thus the revenue drop in fiscal year 2020.

Having said that, it's a very well-run plant, some of our best lean practices, it's a variable headcount workforce so we can bring people back. Boeing is allowing us to produce higher than their internal rate on the MAX.

And we intend to bring that plant back up to its prior rates consistent with Boeing's forecast which as you know is to get back to 31 shipsets per month in 2022. So, it's a good plant and their profitability will come back.

We are consolidating a second plant in Mexico in Zacatecas into our Mexicali plant and some equipment will go to Valencia California. And we've been transitioning work from our Spokane Washington plant down to Mexico as well. So all of those things will be margin-enhancing and we see the value of that business going up over time..

Okay. And as a follow-up, I think last quarter you talked about targeting -- holding adjusted EBITDA margins for each of the businesses. Obviously that didn't happen. In Q1 you're well below.

Is that still the goal to kind of get back to those adjusted EBITDA levels pre-COVID? And if so, what kind of time frame are we looking at to get back to those goals you think? Thanks..

Yes. The goal is to get to peer-like EBITDAP margins. And we're -- our Board has made that a clear goal for the management team. So we want to do more than just recover to where we were pre-COVID and so the cost reductions go a long way to do that exiting loss-making programs go a long way and then some long-term agreement price resets.

Those three things together will help us get there.

Jim?.

Yes I think that's the case. And really treating every expense is variable which we do internally. We have a pretty rigorous process to review our costs. Especially at the height of the crisis we were doing this and working with our operating teams to address every cost possible and treat everything as variable because we have to be able to adjust.

We have a pretty variable cost structure right now. If you remember, more than half of our costs are actually material that are outsourced, so our supply chain is bearing some of the fixed costs and we share in that. And that's why our inventory is temporarily up as we adjust the supply chain.

But we're going to continue to make costs variable and drive towards improved margins for all of the reasons Dan talked about..

Thanks very much..

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

Hi good afternoon. Jim, I wanted to go back to your revenue guide of $1.8 billion to $1.9 billion and ask you what that looks like with just the remaining businesses.

And as a part of that, just in the slide where you talk about the wind-down of Aerostructures that one pending acquisition, how do we think about the certainty of that? And is that a this-year event? I mean it looks like it's supposed to be..

Yes. So I think you're talking about the divestiture walk..

Yes. Exactly right. On slide 7. .

Yes. So, the two transactions we just announced the Composites and the G650, so I mentioned that the sales in the quarter were about $50 million for them. And depending on the timing of closing, if we only had one quarter of them then that would be the impact on the year.

And we evaluate whether that was still within the range of our guidance at that point in time if that was the continuing sales of those. In terms of the anticipated transaction I believe you're referring to I mean the rest of our non-core business is -- we're evaluating and they're in processes.

And we're targeting to have transactions and resolution of them by the end of this fiscal year. But I don't think the change -- if any potential transaction there is foreseeable at this point and that would have any kind of material impact on sales for the year because when it occurs will be later in the year. .

Well, let me ask it this way. Forgetting when these things might happen, what is the size of the remainco revenue compared to the $1.8 billion to $1.9 billion? If you just -- the stuff you're keeping.

Is it $1.3 billion? Is it 1.4 billion? And then Dan when we get back to 31 a month on the 37 and some healthier rates elsewhere, what does that recovery look like compared to the number I just asked Jim for?.

Yes. I think the range that you're quoting is about right and we get back with the recovery of the commercial segment into that $1.8 billion to $2.0 billion range over our planning forecast and that's preliminary. We would like to see some follow-through on the rates coming back and MRO demand but it's in those range of numbers. .

And then just on the EBITDA you talked about or the EBITDA you mentioned earlier you talked about peers but they're somewhat all over the place.

Is there a good number there or a range of numbers? Do we think about somebody like a Spirit when things are normal? I guess that's so much on the structures side so more like somebody else?.

So we use about 20 companies in our peer group and we take a composite of those. But we're really more aspiring for the higher performers in the space. Woodward is an example. They're probably a better comparable for us.

There's no company that does exactly what we do Eaton, Parker, TransDigm HEICO, AAR they're all -- they do parts of what we do but north of 15%. .

Okay. Excellent. Thank you, both..

Our next question comes from Seth Seifman with JPMorgan. .

Hello there. Thank you very much. Good evening. I wanted to ask about so in the Systems and Support business you talked about the aftermarket being down kind of 13% and the military spares helping there.

I guess just to help us get a sense of the relative size of those businesses military and commercial would you say that your commercial aftermarket was down 50-ish 50-plus in line with most of what we've heard from the peer group this quarter?.

Yes. I'll take that question and maybe Bill Kircher can provide some color. So I set a goal at Triumph when I got here to increase military sales from 20% to 30% and we achieved that in this quarter. If you look at our numbers the $495 million of revenue 32% was military.

And that's at the aggregate number across Structure and Systems and OEM and Aftermarket. On the Aftermarket side, we're a key provider of nacelles and thrust reversers for the C-17 overhaul. We overhaul refueling booms for the legacy refueling fleet. We do spares for Apache Chinook. So we've got a lot of content and it has helped to offset commercial.

I would say commercial dropped by approximately 50%. We track the commercial MRO by factory, so it was more in our interiors plant in Atlanta that does interior refurb that really dried up and less than our West Hartford Connecticut plant which has even greater than 35% military contribution.

So but in aggregate the commercial MRO was down substantially. What's encouraging is as Asia and Europe start to fly again, we're watching those receipts and even on the commercial side it's coming back.

Bill?.

Yes. Thanks Dan. You're accurate. Our commercial aftermarket was down 45% to 50%. And our job tracker across our key channels, military, cargo, third-party overhaul, commercial airlines in Asia is trending just how you mentioned. So we're cautiously optimistic that that's going to rebound. .

Okay. Great.

And then Jim maybe just looking at the cash flows in the rest of the year and the increased usage for interest and taxes I guess in Q2 and then through the rest of the year do we think of that as being mostly incremental interest expense? And what's sort of the -- I would expect the cash tax situation to be pretty low both this year and going forward.

Is that a fair assumption?.

Yes. So the -- as you know we have substantial deferred tax assets we can utilize so our cash taxes will be low as they have been in prior years. The reason for the interest being low in the first quarter is just timing of semi-annual interest payments on bonds that occur more in the second and fourth quarter than they do in the first and third.

And that's the key driver for the timing difference there..

Right.

And you've also considered the offering that you've announced in the outlook here?.

Well, this outlook is qualitative. So it would still fall within this range, but it wasn't specifically considered. Certainly there's going to be a higher interest from -- that's going to be -- an impact from it has been undetermined yet..

Okay, great. Thanks very much..

Our next question comes from Michael Ciarmoli with SunTrust Securities..

Hi. Good evening, guys. Thanks for taking the question.

Jim, just on that -- on the $600 million offering, and I jumped on late, so I apologize, but did you guys give sort of a pro forma of what the cap structure is going to look like after that offering?.

No, we haven't yet. So I think that will come out in time, but I think all we have to say about that at the announcement we've put out so far. But once we consummate that we'll give more information..

Okay. And then, just clarification on the aftermarket. You just gave the detail down 45% to 50%. It sounds like some of the Asian markets improving.

Did you start the quarter with a backlog? Did you have a little bit better visibility? Did April perform better? I guess I'm trying to get a sense of how that aftermarket activity looks right now in terms of either incoming repairs or order flow or what you're seeing in real-time..

Yeah. I'll encourage you to look at the slide that was in the deck, that's related to the market that I spoke to on the top-right graphic. I'll get the page number here..

Is that like a page 8? Yeah..

Page 8. Thank you, yeah. So it was pretty high. These are number of repair receipts, so the inbox at our MRO site. So we were running about, 4,500 pre-COVID. In March, it maintained pretty well. And then we saw the big step-down to about half that in April. And May was the trough month.

But it's picking up in June and July, and it's enabled by both military and commercial. So, it's not yet back to where we want it to be, but the trend is in the right direction..

Okay. But -- so that chart is both commercial and military.

Do you have the commercial portion of it?.

I don't think we have that handy. But Bill, maybe you can speak to what you're seeing.

Is one offsetting the other?.

Yeah. Thanks, Dan. We see the military and cargo certainly offsetting the commercial. And like Dan mentioned, Asia is stepping back quicker than North America. And then third-party overhaul, I would say remains flat. So, kind of military and cargo up, third-party overhaul, commercial flat and early trending out of Asia is positive..

And the unit cost for military repair is typically higher, so the volume maybe a little lower but the unit costs are….

That's correct. .

Got it. Just last one Jim. On the working capital and I guess looking at -- I mean maybe specifically inventory, do you guys have a good read on your inventory that's in the channel out there? I mean it seems like there's quite a lot of destocking, that's exacerbating some of the OEM production declines.

Is that something you monitor? Do you think that's a potential risk to cash conversion as you try and maybe unwind some of that inventory?.

Yeah. I don't -- that's not something that we've seen have an impact on us. Although obviously there's some in the channels, but I don't think we have a lot out there. And we're not building that far ahead. So, compared to some of our competitors that I know, are a waybill ahead, that's not the case.

So we are taking that into account and our forecast is based on what the OEM is willing to take from us and what our forecast is that the distributors will take as well..

Got it, perfect. Thanks guys..

Thank you..

Our next question comes from Ken Herbert with Canaccord..

Yeah. Hi, good afternoon. Hi, Dan, and Jim. I just wanted to see Dan, as you look at Systems and Support and the adjusted 11.7% margins in the first quarter, can you just walk through some of the moving pieces for that as we think about the full year? And specifically, it sounds like aftermarket was obviously -- or likely a headwind this quarter.

How do you see that sort of normalizing over the fiscal year? And what kind of maybe sequential improvement across the year should we see in margins in that business?.

Yeah. The reduction in MRO demand, which carries a higher margin, especially spares, and to a smaller degree repairs, was the primary driver for margin compression in Q1. So as MRO receipts and deliveries improved Q2, Q3 to Q4, we'll see margins follow. And we make money on Max too.

And there are actuator deliveries, some hydraulics that are done out of Systems. And when the rate stepped down from 20 -- really 40 to 20 and then were paused, that also affected margins. But it was primarily MRO. And so, we'll see, over the course of the next three quarters, pick-ups in those areas. Airbus ramping back up on narrowbody will help us.

Systems supports them as well..

Thanks.

And in the MRO business, are you seeing incremental pressure on labor rates from your airline customers, or are you still able to sort of pass through or get the labor rates that you've gotten in the past?.

No, that hasn't been a factor for us. The big challenge in Q1 was all the airlines just went on lockdown mode, trying to figure out and cut their own capacity. And so, we didn't get the kind of order uptake we might have seen from like Delta. But we did see good pick-up from UPS, FedEx and Atlas, as I mentioned 11% year-to-date on freighter volume.

So there hasn't been -- the airlines haven't been calling us saying, hey, I want to see price reductions. It's just been a volume reduction. So we do expect there to be a shakeout in the MRO space with smaller companies, as a result of decreased demand.

And because Triumph can afford rotable inventories and we're getting more into usable -- new serviceable materials, we plan to take share away from some of the smaller MRO providers in that space. So watch this space..

Okay.

And just, finally, on that comment, have you quantified how much of a use maybe the MRO business or the aftermarket could be in terms of working capital in the back half of the year, or is it maybe not material?.

There's no big swings. Yes, go ahead, Jim. .

Yes, it isn't material. And we have a rotable pool that's in there and we continue to shift that to where the demand is. But there really is not a material requirement for working capital in the MRO business..

Okay. Great. Thank you very much..

Thank you..

Since there are no further questions in queue, this concludes Triumph Group's first quarter fiscal year 2021 earnings call. This call actually has a replay that is available starting today at 8:30 PM Eastern Standard Time until the 11. You can access the replay by dialing 1800-585-8367 and entering access code 8498495.

Again, you can access the replay by dialing 1800-585-8367 and entering access code 8498495. This concludes today's conference. You may all disconnect and have a wonderful day..