Triumph Group Inc (TGI) 2022 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group conference call to discuss our third quarter fiscal year 2022 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. (Operator Instructions)

On behalf of the company, I would now like to read the following statement. There are certain statements on this call that 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 the company's reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the press release, which can be found on our website 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 Chairman and Chief Executive Officer; and James F. McCabe, Jr., Senior Vice President and Chief Financial Officer of Triumph Group, Inc. Go ahead, Mr. Crowley.

Thank you, Tom, and welcome, everyone, to Triumph's Q3 earnings call. It's encouraging to see COVID cases coming down with borders reopening, including most recently, Australia, signaling an improving outlook for our industry. Earlier today, we reported our third quarter results for fiscal year 2022. Triumph generated positive free cash flow and improving margins in our core Systems & Support segment. Our team continues to deliver against our strategic plan in a challenging environment.

Triumph is emerging as a new company. We are meeting the targets laid out in our transformation plan. We're a company focused on meeting our full year objectives and accelerating organic growth as a leading pure-play systems and aftermarket company. We recently exited the last of our 747 production facilities and announced the sale of our Stuart, Florida Aerostructures business. Stuart is the last large structures facility in our portfolio and the exit is a major milestone for Triumph.

And our focus on winning is paying off. In the fiscal year-to-date, we've secured over $2 billion in new orders across the company. On Slide 4, I summarize some of the quarter's highlights. First, we generated free cash flow of $7 million driven by our improving operations and reduced working capital. Cost reductions, lean events and a more favorable sales mix as well as retirement of programmatic risk yielded a 20% EBITDAP margin in our Systems & Support segment.

As experienced by many of our peers, organic sales declined slightly due to short-term order deferrals on commercial wide-body and military OEM platforms, but partially offset by returning MRO orders. This temporary flat spot in the recovery is expected to abate early in our fiscal 2023. And last, our actions to mitigate supply chain constraints have lessened the impact on Triumph as we partner with our customers to ensure supply continuity and affordability.

Before Jim covers the quarter's results, I'd like to provide context on how we are positioning Triumph in the macro environment. Commercial aircraft deliveries are on the rise. In 2021, Airbus delivered 611 commercial aircraft and Boeing 340 for a total of 951 aircraft, up 33% from 2020. 2022 combined deliveries are projected to exceed 1,400 aircraft, a further 47% increase. Additionally, net commercial transport orders for Airbus and Boeing totaled approximately 1,040 for the year, marking an exit from the COVID-induced aviation downturn. The freighter market continues to be strong, with widebody fleets up 36% and narrowbody up 50% since the beginning of the pandemic.

Utilization is also up 25%. Both passenger to freighter conversions and OEM freighter production provide opportunities for Triumph as we pursue cargo door actuation and insulation opportunities for conversions and have substantial content on the new A350 and 777X freighters. Increases in both commercial transport and freighter markets provide reason for optimism over our planning horizon.

Narrowbody looks strong also. Prime shipments to Boeing and Airbus for the 737 and the A320, 321 were up 54% quarter-over-quarter. Backlog for 737 and A320, 321 is up 47% and 27% respectively, year-over-year. Plans for the 737 MAX return to service in China, Indonesia, Hong Kong and Ethiopia provide tailwinds on both the OEM and aftermarket demand. The trajectory of the aviation recovery, though paused by the Omicron variant, continues to be upward.

The broad recovery of these platforms benefits Triumph's as our year-to-date book-to-bill ratio through December reached 1.15, led by our actuation business. While orders are up, short-term systems and support revenues in the quarter declined as a result of timing or deferments compared to prior year and sequentially. 787 production accounted for roughly half of the decline, while delayed military rotorcraft deliveries accounted for the balance. We expect both of these headwinds to abate in the coming quarters. Anticipated ramp-up of 787 shipments, coupled with recently secured pricing resets, will aid top line and margin expansion in the coming quarters.

New wins for the quarter can be seen on Slides 5 and 6. Triumph continues to win in a competitive market on the strength of our platform incumbency, innovation and IP. We have won more than $2 billion of new orders year-to-date. That's a year-to-date record since 2016. We set an internal goal to expand sales from new products, platforms and customers by 25% over the next 3 years. Orders from these sources are up 38% from prior year. Triumph's interior business is a global market leader in thermal acoustic cabin installation. We were recently selected to design and build the A220's entire insulation package, adding to our current role supplying the cabin floor. This builds on our A350 cabin insulation systems content. Coupled with recent Boeing long-term agreements for insulation and ducting, interiors is well positioned to capitalize on the market recovery and anticipated rate increases.

Our actuation business won 4 awards, an innovative electromechanical actuator for Raytheon's Next-Gen Jammer, a holdback bar for an undisclosed Lockheed Martin platform, a weapons bay door actuation order for the FARA Future Vertical led program, and an integrated hydraulic power pack for a passenger to freighter conversion program. Chemical Solutions business, a market leader in precision, low hysteresis control cables, was awarded a design and build contract for the Calidus B-250 light attack aircraft. We were also awarded a remote mechanical valve actuation system for a French nuclear power plant. And then the Geared Solutions business, which is the largest third-party aerospace gear provider in the world, we finalized large contract extension with Rolls-Royce for a suite of military and commercial applications.

Finally, our product support business formally launched the xCelle JV to overhaul the cell components on the 787 and 737 MAX, while extending our aftermarket offload partnerships with Collins on the Bombardier CRJ and with Brazilian airline GOL on their 737 fleet. Product support continues to win in this competitive MRO market, where OEMs appreciate our dependability, quality and consistent turnaround times.

Turning briefly to our supply chain. We continue to focus on costs for materials, labor and overhead, given the ongoing inflationary market pressures, balancing risk and opportunity with respect to commodities and supply chain inflation. Over the next 3 years, our existing contracts provisions help protect against increases in material costs by employing annual price index adjustments based on industry indices and general protections against material price changes above certain threshold levels.

Triumph recently held a supplier conference with our top 50 partners, where we discussed how to mitigate anticipated supply chain constraints expected over the next 12 to 18 months and stressed the importance of preparing for the coming ramp. We presented the latest production rates across all our platforms and had 3 OEMs speak about the importance of early hiring and CapEx investments to avoid the bottlenecks we saw in 2018, 2019 before the pandemic.

We've been encouraged by the suppliers' follow-through on the joint actions we adopted and are staying in lockstep with the OEMs on their delivery forecasts. The pandemic created many challenges but also opportunities. Triumph is renewing the social contract with our employees to include greater flexibility and career opportunities for both salaried and hourly team members to make Triumph a preferred place to work. Pandemic has illustrated that we can more sustainably balance the needs of our employees and our company to achieve higher levels of employee satisfaction and performance. This discussion is underway across every level of our organization.

Referred to internally as the new deal, we are tapping into the demonstrated levels of workforce engagement and virtual collaboration tools to reinvent the office and factory as we accelerate the adoption of empowered cross-functional teams across the company. As a result, we anticipate higher levels of productivity towards our stated goal of doubling profitability. In my view, our new approach to workforce engagement will be one of our most valuable lessons from the pandemic.

In summary, Triumph grew margins in the quarter in our core Systems & Support business and retired several nonrecurring cash uses. Short-term order deferrals on 787 and military OEM production are expected to abate in our fiscal 2023 and are being offset by our new contract wins. Our actions in this quarter, combined with OEM and MRO rate increases, will support our expanded margins and improved cash flow, putting us on a solid path to deliver growth while deleveraging the company year-over-year. As we move forward, we are investing in our people, operations and products to ensure Triumph remains differentiated in the market and delivers enhanced shareholder value year-over-year.

With that, Jim will now take us through the results for the quarter in more detail. Jim?

Thanks, Dan, and good morning, everyone. As I review the financial results for the quarter, please refer to the presentation posted with our earnings release today. Triumph was cash positive and profitable this quarter on both a GAAP and adjusted basis. I'll be discussing adjusted results, so please see our earnings press release and the supplemental slides in our presentation for the explanation of our adjustments.

On Page 7 are our consolidated results for the quarter. Revenue of $319 million reflects increased revenue from narrowbody and bizjet platforms, and growth in third-party MRO revenue. This was offset by the combination of the 787 rate reductions and short-term military OEM delivery timing.

Continuing the shift towards our core, Systems & Support revenue now makes up 74% of total revenue in the quarter, up from 62% a year ago. Adjusted operating income of $33 million represents a 10% operating margin, an increase from 9% a year ago. Systems & Support generated substantially all the operating income this quarter. Note that our adjustments are getting smaller, with only a $5 million difference between the $28 million GAAP operating income and $33 million adjusted operating income this quarter, reinforcing Triumph's ability to become predictably profitable.

All of the $5 million adjustment is attributable to the Structures segment this quarter, due to our 747 production facility shutdown in Grand Prairie, Texas, which was completed in December, and the shutdown of our interiors facility in Spokane, Washington, which will be complete in the first half of this calendar year.

Turning to Page 8, you'll see our Systems & Support results and highlights. Revenue in the quarter include higher narrowbody and bizjet platform revenue and a 12% increase in our third-party MRO revenue over the prior year quarter. This was offset by delivery timing in our military OEM programs and the 787 short-term volume decreases. Systems & Support operating income was $41 million or 17% for the quarter, which is a 60 basis point increase over last year on an adjusted basis.

Systems & Support EBITDA was $47 million or 20%, a 220 basis point increase over last year, a measurable step towards our goal of doubling EBITDA over the next 3 years. Previously announced sale of Systems & Support's Staverton U.K. facility and the sale and licensing of certain related legacy product lines closed in early October. We used the net proceeds to reduce debt.

On Page 9, you'll find Structures' results and highlights. Structures revenue of $83 million was up 3% organically over last year. That's excluding divestitures and sunsetting programs. 737 production rate increases contributed to their organic growth. At 26% of total revenue, we continue to make good progress on the revenue mix shift towards Systems & Support. At the end of the quarter, we exited our last 747 production facility on time and under budget. Sale of the Stuart Structures facility is expected to close in the first half of this calendar year. This divestiture will complete our comprehensive exit of our build-to-print and contract manufacturing Structures business. Given the pending exit of Structures, we're evaluating supplemental disclosures to provide additional insight into our continuing business going forward.

On Page 10 is our free cash flow walk for the quarter and year-to-date. Consistent with our guidance, we generated $7 million of free cash flow in the quarter. We continue to reduce nonrecurring cash uses and are on track to increase our free cash flow generation in Q4. As expected, free cash flow this quarter included $28 million of nonrecurring cash drivers, including $21 million of advanced liquidations and $8 million of funding of previously accrued 747 losses. We expect a total of $166 million of nonrecurring cash uses for the full year, as detailed on the slide. Capital expenditures increased to $7 million this quarter, with investment in our Systems & Support segment in support of rising OEM and MRO demand and sustaining supporting infrastructure improvements.

On Page 11 is the schedule of our net debt and liquidity. During the quarter, we paid down our first lien notes by $24 million from the proceeds of the Staverton divestiture. We also extended the maturity of our receivable securitization facility to November of 2024 and increased its capacity from $75 million to $100 million. It serves as a low-cost source of contingent liquidity.

At the end of the quarter, we had about $1.4 billion of net debt, down 11% from a year ago. We also had $250 million of cash and availability, which is more than sufficient for our projected needs. Our next debt maturity is over 2.5 years from now. We are deleveraging by reducing debt with proceeds from divestitures and by expanding free cash flow and EBITDA in our continuing businesses.

On Page 12, you'll find a summary of our fiscal '22 guidance. Based on anticipated aircraft production rates and excluding the impacts of potential divestitures, for fiscal '22, we expect revenue of approximately $1.5 billion. We expect adjusted EPS of $0.80 to $0.90 per diluted share. Cash taxes net of refunds received are expected to be approximately $5 million in the year.

We continue to expect interest expense to be approximately $140 million, including $137 million of cash interest. For the full year, we expect to use $125 million of cash from operations with approximately $25 million in capital expenditures, resulting in free cash use of approximately $150 million. We continue to achieve our goals and have made significant progress in improving the predictability of our profitability and cash flow. Our portfolio actions, operational efficiencies, improved pricing, cost reductions and increases in volume will all contribute to improving margins and cash flow moving forward. We are stronger and more competitive today for all the actions we have and are taking.

Most importantly, Triumph is now primarily a Systems & Support company. Our mix of business includes more IP-based and spares revenue than it has in the past. We can earn higher margins with less capital than we could in our former build-to-print businesses. We continue to invest in our people to develop and deliver unique and valuable solutions for our customers, which results in sustainable, profitable growth.

Now I'll turn the call back to Dan. Dan?

Thanks, Jim. Despite the market dynamics, I'm pleased with our third quarter and fiscal year-to-date results, providing us with solid momentum to deliver a strong fourth quarter of fiscal 2022. Winning new IP-based business and exiting build-to-print structures are at the core of our path to value as we continue our work towards our desired business portfolio.

Looking ahead, we remain focused on the elements within our control as demonstrated by our pivot to growth through new wins and strategic partnerships, both of which will enable Triumph to further diversify our backlog and increase our top and bottom lines. I look forward to reporting on our progress as we continue our efforts to further unlock the hidden value across our business and deliver value for the benefit of all our stakeholders. We're happy now to take any questions.

(Operator Instructions) Sheila Kahyaoglu, please state your affiliation followed by your question.

It's Sheila from Jefferies. Can you talk about the structures business now that Stuart is on its way to being finalized? What should we think about your revenue and EBITDA profile given what sort of revenue run rate and given the about breakeven margins this quarter?

Thanks, Sheila. The Structures business didn't contribute a lot to EBITDA. We've got it to breakeven and it will benefit from some of the tailwinds of 737, which it's seeing now, and then from 787 when that comes back. But Structures -- the continuing business there is the interiors business. And it's much -- it's very different than the large metallic Structures business that we've been divesting and that Stuart is part of. The interiors business just signed some long-term contracts with major OEMs. And it's going to see improving margins with volume returning. It's a very different business because it's smaller parts. They're unique. We do have a little bit of proprietary content in there.

So in terms of the size of the business, it's going to be much smaller. And what's most important is that we really are a systems and aftermarket company now. So the size of Structures is shrinking. But the size of Systems and the aftermarket business is about 74% of revenue, and it's contributing all of the profitability in the quarter.

Sure. And so for fiscal '23, do we think about the interiors business is around $175 million to $200 million? Is that sort of the size? And maybe as a follow-up, I don't know if you provided proceeds to the Stuart divestiture, but if you're willing to give that.

Yes. The details of Stuart will be disclosed when we close the transaction in the coming months. So we haven't given that yet. In terms of the size of Structures moving forward, I think you're in the ballpark, and it could be higher than that given the return of volumes on some of the major programs.

Peter Arment, please state your affiliation followed by your question.

Dan, maybe you could just talk about Systems margins' kind of sustainability, high 17% in the quarter, but just how you're thinking about the ability to sustain kind of high-teens margins, particularly as volumes start to pick up as we get into fiscal '23.

Yes. Our goal is not to sustain and, Peter, it's to increase them into the 20s. And our path to that is one part mix change where we increase the contribution of MRO and spares versus OEM. That started 2 years ago when we combined our third-party MRO and OEM, MRO businesses to help our OEM businesses grow their aftermarket and recapture the tail. So that's a multiyear initiative that's going to benefit us going forward.

The second enabler, for the Systems margins exiting or renegotiating programs that have margins below our weighted cost of capital. And so in Q3, we continued this cadence of meeting with OEMs, making the case for either price-ups or sourcing the work at another customer. And that's also going to be kicking in over multiple years as those new contracts replace the ones that are running out. And the third initiative is products. I mentioned in my script about growing revenue to the point where 25% of our sales comes from new products, customers and markets.

And so this is where the IP-based products that are in development right now. I just came back from our Clemmons, North Carolina plant, where I walked through all of the test labs where they have new fuel pumps, new hydraulic pumps that are in qualification. And a lot of those have been developed with customer money, what we call CRAD, contract research and development. So as those products come in, we'll be able to enhance our margins. So it's really the combination of those 3 drivers to get Systems where we want them to be.

Appreciate that. And just as a follow-up, just circling back to the comment -- question on Stuart, is there any details regarding if you've had any customer agreements yet on the sale? Or what can you provide us, whether that's already been approved?

Yes. Thanks, Peter. So we started the dialogue with Boeing on Stuart 3, 4 years ago with Kevin Schemm, CFO of Boeing Commercial. And so it's been a partnership, trying to identify the best long-term partner to own it. Triumph has improved the business on our watch. It's become stable as a source of delivery. It's a business that has been profitable for us. But we're not the right long-term owner. It's not an area we want to continue to invest. But there are other buyers. And I think Daher, it wasn't clear at the end who would win the race. And part of the delay was we had multiple interested parties, but Daher being a first tier supplier and an OEM in their own right with a desire to expand their U.S. footprint and increase Boeing content is going to be a tremendous owner, and they did have meetings with Boeing prior to the announced signing. And I understand -- I was not in those meetings. I understand they went well.

Triumph is committed to a smooth transition. We owe Boeing delivery on-time with quality, and that's a challenge every day. We intend to fulfill it. We understand the importance to Boeing on both the tanker and the freighter, of the wing center sections that are produced there as well as 777 parts and some parts for Gulfstream. So early discussions have begun, and we're confident that it will be -- consents will be received, and we'll close on a timely basis.

Seth Seifman, please state your affiliation followed by your question.

It's Seth Seifman from JPMorgan. Guys, I wonder once the Stuart transaction is closed, how do you plan to report? Will there still be a Structures segment comprised solely of the interiors business? Will there be no segments? Or will there be new segments?

Yes. Great question. We're committed to provide transparency and the kind of visibility that analysts and investors can model the company properly. Underneath Systems, there really are 5 operating companies, each with $200 million to $300 million in sales. So one of the ideas we're kicking around, and we welcome feedback from investors, is reporting on that level rather than reporting task in TSS. There's some work involved to do that. You've got to go back a couple of years and report it in that breakout. But the key is that we operate, organize and report in a consistent manner. And we're working on the plans to do that. We'll discuss it with the Board here in February. And our goal is to let you know the game plan in April, we start the new year. But you have our commitment to provide the kind of visibility necessary to understand the company. Jim?

Yes, Seth, we're going to look to provide a supplemental disclosure was what I mentioned in my remarks, to go a little deeper, but within the existing structure right now. So we want to provide that transparency and information, but we don't want to create extra work, especially for investors to have to go and look at things historically. So we'll talk to many investors over the coming months and make a determination for that going forward.

Great. And then just as a follow-up, Dan, if I could dig in a little bit more about the IP and proprietary content that you mentioned, and I apologize for a bit of a series of questions here, but any color you could provide would be good. I guess historically, kind of thought of maybe the old Integrated Systems business maybe being 15% to 20% proprietary aftermarket, and that would include both commercial and military. I guess how do you think about where that is now? And I guess, putting it in the context of Systems & Support versus the old Integrated Systems.

And then the 25% that you talked about, is that sort of -- is that the goal from where we are now and how long you kind of think about it taking to get there? And how far some of the work that you talked about today gets you along that path?

I'll start with the second part on growing revenue, 25% of it being from new products, customers, markets. We initiated that goal in our fiscal '22, so we're 10 months into it. And when you set a goal like that, it starts with adjusting your strategy. That leads to captures, that leads to orders and then sales materialize. So you can't go from aspiration or goal to sales in one step, you have to go through the pivot to that. But when I mentioned that our orders coming from those sources were up 38%, it's a really good sign that our team has made that pivot, and they've started to engage new customers.

I mentioned in the quarter, some of our press releases, we're now heavy into the freighter conversion markets when an operator acquires, let's say, used A321s, they've got to modify the fuselage and put in a main cargo door and add actuation. We provide that. They have to modify the interior, we do that work. So that's an example of new products, new services. The xCelle Americas JV with Air France KLM is another example. And we've been working on this for a couple of years. It's now officially live and what it's focused on in partnership with Air France, which is a 14,000-person MRO business, that we'll have all the North and South American 737 MAX, the 787s, the A320neos, the A350s, all of the new incoming aircrafts on the cell overhaul repair work, mostly thrust reversers, so that's another example of another partnership and going after a new segment, new platforms that are currently not in our third-party MRO business.

As far as IT, what we're really focused on is our core products: fuel pumps, actuation, heat exchangers and engine controls. So those 4 products. And when Triumph was tight on cash as we've been for the last few years, we really had to work with customer-funded R&D, and we've been very successful at that. Companies like GE have helped develop like the next-generation military fuel pump that will benefit multiple platforms. And that's the key, is don't do one-shot IP that's a point solution for a program, but develop a core product that can be applied to multiple applications and platforms. So we're all about that, trying to figure out how to both develop in partnership with our customers and then apply these new products. The percentage of IP are higher than I think you called out like 15%.

Yes, it's more like 60% in the Systems & Support business is IP driven. And when you add in the sole source, it can be up to 90% in that segment.

So we just plan to continue to expand that. And one other change that relates to this is Triumph used to go to market through separate companies and sell piece parts. Now we go to market on subsystems like landing gear where we can not only sell the actuators that raise and lower gear, but the up locks as well. It's been a good platform for us. And our Seattle R&D side is now developing programs that benefit multiple OEM sites across the company. So we're excited about it. The leadership team knows that they have to pivot from contraction and divestiture to grow, and the IP business will be a key part of that.

Myles Walton, please state your affiliation followed by your question.

It's UBS. I was hoping you could give us some color on the EPS implied for the fourth quarter and sort of what's underlying. Obviously, an increase in exit margins, I think, somewhere in the 12% to 13%. And I wonder, is the aviation manufacturing jobs program in that number? I think there's still about $17 million left to run through the P&L. And is that the source of the upside to EPS?

Thanks, Myles, this is Jim. That is part of the mix. Certainly, the MJP money. We got $10 million in the quarter of cash. We recognized about $2.7 million in the third quarter, and that gets recognized over the 6-month period. So there will be some of that in the fourth quarter. Fourth quarter is also a seasonally strong quarter. And of course, we're seeing the ramp on certain programs. We have some delays in military programs that should benefit. It was a play in Q3. It will benefit Q4. So it's a lot in the mix, but that is part of it, and we're pleased that the government is providing that support to make sure we have a talented workforce that continues, so we're ready for the ramp moving forward.

Okay. And then just a clarification. I don't know for Dan or Jim, but the doubling of EBITDA from 2022 to 2025 fiscal, is that -- it looks like implied EBITDA for this year somewhere in -- the EBITDAP, I imagine you were talking about somewhere in the 180 range, I think, based on your numbers. Is that doubling that number or doubling it less the divestitures that you've made?

So it's a target. So it will be doubling the continuing business. Of course, we can't double EBITDA that we may have sold with businesses. But if you look at what we did in the quarter, it's about $41 million, $42 million of EBITDAP in the quarter for the full company. And year-to-date, I think we're at $123 million, but the fourth quarter is the strongest quarter of the year. It's a target we're working towards internally. We see the levers to get there and look forward to giving guidance in the future towards that.

David Strauss, please state your affiliation followed by your question.

Yes, Barclays. Jim, the $166 million in nonrecurring cash items in -- and what does that bucket look like in '23?

Yes. Thanks, Dave. Well, what I can tell you is what's going on in the current year. We got $28 million of those in the current quarter, $21 million of liquidation of advances, $8 million on the 4 7 funding. The 4 7 shift out, the production is complete. We have some shipments in the first half of this year. So there will be some wrap up on 4 7, but that shouldn't be that large. The advances at the end of December were about $124 million. And we've already -- we've spent our $21 million in liquidation in Q4. So we're down right now, at this point in time, about $103 million of advance. And then between now and when we announced the Stuart closure, we'll be able to tell you more about what the timing of the liquidation of the remaining advances will be.

Okay. On 747, you were implying the cash cost or nonrecurring cash costs are going to be higher in '23 than '22?

No, no. No, that they're winding down, that there's going to be some residual as we close up the remaining factory where we're storing them and shipping them from. But it was only $8 million in this quarter, and it will be less moving forward.

Okay. Got it. And any sort of early look on pension income, what that could look like in '23 versus, I guess, you're running this year like $55 million, $56 million pension and OPEB?

Yes, pension -- to me, the most important part of pension is what funding we have to put into the trust, and there's no funding required over the next 4 years in our forecast right now. So interest rates going up is going to reduce our liability. So I don't have exact number, but it's not going to change materially. And if it does, it's going to be a noncash change.

Michael Ciarmoli, please state your affiliation followed by your questions.

Truist Securities. Maybe, Jim, just to stay on David's line of questioning on the cash. I guess it sounds like you're not going to give some sort of walk here to '23. But should we just assume as things stand today without any details from Stuart, you still have about $20 million per quarter of liquidations? And then can you give us a sense what did Stuart, or what will it contribute to free cash flow this year and CapEx so that we can kind of get some sort of level setting for next year?

Yes, sure. In terms of advances, next year will be the last year there's any advanced liquidations, and the exact timing of those is going to be determined between now and the Stuart closing. In terms of CapEx run rate, we did spend $7 million, I believe, in the quarter, and that's a normalized run rate moving forward for the continuing business. Remember that with the remaining portfolio, it's much less capital intense, actually more R&D intense. And we're spending more on R&D, both from customer funded and funding ourselves. And that's going to help us improve our margins and our mix of business moving forward.

Yes, not Stuart.

Okay. Out of the CapEx this year, how much was related to Stuart?

A couple million dollars, maybe.

Okay. And then just last one. On the guidance, the drivers to the downward revisions to the low end of the ranges on revenue and cash. First, I'm assuming Stuart is still in there. And is that just a function of kind of what you called out the 787 and the deferred military orders, things sliding into '23?

Yes, that's exactly right. Stuart is still in there to the guidance until we actually close.

Mariana Perez Mora, please state your affiliation followed by your question.

This is Mariana from Bank of America. So this is a follow-up to Mike's question. One, it's also related to free cash flow. How should we think about mid- to long-term target free cash flow? And what are the key variables that will determine when and if you are able to achieve that?

Thanks, Mariana. The cash flow is positive this quarter. It's going to be more positive in Q4. And the drivers for cash flow moving forward, I can tell you what they are and you can do your own work until we give guidance to determine what you think we can achieve relative to our peer group. But these portfolio actions have been important. They're improving our margins moving forward. For example, our aftermarket business, which is so important because it has higher margin, it's spares and repairs, has moved from 24% in last year's third quarter up to 32% in this quarter. So that's going to be an important source of cash flow and margins moving forward.

The operational efficiencies, we've spent a lot of time on restructuring. That's really reduced substantially now with the 4 7 being the last piece of it in Spokane. That's going away. And the benefits of the restructuring actions and our ability to focus on our operating efficiencies in the core business are going to have a benefit to profitability and cash flow as well. We've been able to reset pricing on some key programs that were not making money previously to some normalized margins, and that's going to be helpful. We've been able to get cost reductions, working with our supply chain. And increases in volume are going to drive the bottom line as we see return to service on the 737 MAX and the 787 and some of the military programs start to ramp back up.

So there's a lot of tailwinds for us moving forward on profitability and cash flow. It's not going to happen overnight as the last couple of years has been lumpy, but we're certainly a much more predictable and profitable business now. And we've just completed that Stuart divestiture, and announcing a closure of that, we'll look forward to give more insight into the drivers within each of the Opcos.

And then my follow-up is on the interior business. Could you mind discussing what is the breakdown between narrowbody and widebody exposure?

Well, let me first tell you that our OEM business is 74% last year down to 66% this year. Our largest program for narrowbody right now is the Airbus program, followed by 737. So you can look in the presentation on Page 14, and you'll see a breakdown of all of our programs and what percentage of backlog they comprise. So for example, A321 is 7% of our overall backlog. And you can see by the color coding on there, what portion is in the Structures business and what is in the Systems & Support business. That's the gray side. So I think we provided this additional information a couple of quarters ago to start to give people better insights into what the quality of our backlog is and what sales going forward is going to look like.

Since there are no further questions, this concludes today's Triumph Group's Third Quarter Fiscal Year 2022 Earnings Conference Call. This call will have a replay that will be available today at 11:30 a.m. Eastern Standard Time through the 24th at 11:59 p.m. Eastern Standard Time. You can access the replay by dialing 1 (800) 585-8367 and entering access code 6195355.

Thank you all for participating, and have a nice day. You may now disconnect.