Triumph Group (NYSE:TGI) Q1 2023 Earnings Conference Call August 3, 2022 8:30 AM ET
Company Participants
Thomas Quigley – VP, IR & Controller
Daniel Crowley – Chairman, President & CEO
James McCabe – SVP & CFO
Conference Call Participants
Seth Seifman – JPMorgan Chase & Co.
Peter Arment – Robert W. Baird & Co.
Sheila Kahyaoglu – Jefferies
Michael Ciarmoli – Truist Securities
Ronald Epstein – Bank of America Merrill Lynch
David Strauss – Barclays Bank
Operator
Welcome to Triumph’s First Quarter Fiscal Year 2023 Results Conference Call. 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 are having trouble viewing the slide presentation. [Operator Instructions]. Please note this event is being recorded. In addition, please note that this call is the property of Triumph Group, Inc. and may not be recorded, transcribed or rebroadcast without explicit written approval.
I would like to introduce Tom Quigley, Triumph’s Vice President of Investor Relations and Controller, who will provide a brief opening statement.
Thomas Quigley
Thank you. Good morning, and welcome to our first quarter fiscal 2023 earnings call. Today, I’m joined by Dan Crowley, the company’s Chairman, President and Chief Executive Officer; and Jim McCabe, Senior Vice President and Chief Financial Officer of Triumph.
During our call, we’ll be referring to the supplemental slides, which are posted on our website. 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 our website at www.triumphgroup.com.
Dan, I’ll turn it over to you.
Daniel Crowley
Thanks, Tom. Earlier today, we reported our first quarter results for fiscal year 2023. I’m pleased to share that despite the challenging macro environment, Triumph demonstrated organic growth in its continuing operations and completed its portfolio transformation to position the company for the future. Our Q1 results exceeded our expectations overall.
On Slide 3, I summarize the quarter’s highlights. First, we generated organic growth in our continuing operations, driven by improving commercial OEM and MRO demand. With the sale of its Stuart Florida plant, our 16th and final divestiture, Triumph has exited its large structure business, consistent with our strategic plan.
Backlog is up 7%, with expanding book-to-bill and new partnerships. Triumph is well positioned to realize the benefits of our diversification strategy.
Our actions to mitigate supply chain constraints have lessened the impact on Triumph as we continue to partner with our customers and suppliers to ensure supply continuity and affordability.
With years of heavy cash use now behind us, we are updating our revenue and earnings guidance and reiterate our cash guidance for fiscal ’23, reflecting improving sales and cash flow. Q1 marked an inflection point for the company on cash. We retired obligations of over $100 million from our Legacy Structures business, improved cash use from a year ago and expect to be cash flow positive over the balance of the fiscal year.
All the enablers for value creation and deleveraging are headed in the right direction. The time and energy of our team that allowed us to execute on our multiyear restructuring have shifted to organic growth and expansion of our products, services and customer base, all of which enhance our financial forecast and predictability.
Coming off a productive Farnborough Airshow, our team is excited for the future. Bottom line, our first quarter results keep us on track with our goal of doubling profitability over fiscal years 2022 to 2025 driven by improved OEM production rates, expanded MRO volumes, enhanced pricing from recent contract extensions and lower cost structure as a result of our transformation.
As we pursue expanded margins, we’re also focused on growth. In the first quarter, we secured over $422 million in new orders across our continuing business. Backlog has troughed and begun to grow after years of top-line contraction. Commercial backlog and Triumph Systems and Support business is up 24% for the quarter paced by an 80% increase in 737 MAX backlog, partially offset by a modest decline in military backlog.
Total company and systems and support book-to-bill ratios for the quarter were approximately 1.5%. Both MRO receipts and new RFP volume remain very high. The Triumph delegation just returned from the 2022 Farnborough International Airshow, the first in-person event since 2018, where more than 15,000 exhibitors met signaling a return to a normalized aerospace market.
I met with the CEOs of more than 20 of our key customer organizations, and our team met with over 100 suppliers. Industry participants were optimistic, tempered with some concern around the supply chain’s ability to support the anticipated ramp rates.
In the last week, Boeing, Airbus and GE signaled short delays in the timing of production ramp step-ups, typically 3 to 6 months, which will not have a material impact on the narrow-body ramp or Triumph’s financial outlook.
Our collective challenge remains how quickly can we get to rates far greater than achieved prior to the pandemic. In the quarter, Triumph announced plans to partner with Mubadala’s Sanad engine overhaul business in the UAE to play a larger role in MRO expansion in the Middle East. We view this formative partnership as complementary to our recently launched joint venture with Air France KLM called xCelle.
Both accelerate our capabilities and footprint and provide early life access to engine component MRO. Triumph and Sanad will jointly establish in-region capabilities to improve turnaround time and support to customers such as GE and Rolls-Royce.
Triumph also announced an agreement with Moog, in which we combined our respective 787 landing gear and flight control actuator offerings under a power-by-the-hour contract for an Asian carrier.
You can expect Triumph to pursue more partnerships and new channels to market to expand our reach and top line.
Last, Triumph is collaborating with Lockheed Martin to jointly develop components and subsystems for future aircraft thermal management systems as aircraft electrification advances. New ways to dissipate heat will be needed, and we are creating IP to support these demands.
Other wins for the quarter can be seen on Slides 4 and 5. Despite short-term supply chain pressures, the air travel market and carrier financial health, both continue to recover. The improving travel demand is aiding industry profitability which, coupled with higher fuel prices, increases the prospect for new aircraft orders and rate increases.
On July 1, IATA forecasted North American operators would post a profit for 2022, while global operators are posting near breakeven profitability, a substantial turnaround since the losses of 2020. This air traffic recovery is reflected in Prime’s MRO revenue, which is up 95% for the quarter and 38% sequentially.
Cargo revenues declined 21% for the quarter, though still operating at levels above those of 2019 as commercial transport belly capacity returns. Triumph’s engine customer revenues rose 23% for the quarter, driven by single-aisle leap engine gearboxes. GE anticipates flattened demand over the next few months as the supply chain prepares for the ramp, but we remain confident in the longer-term outlook.
Military spending remains strong with the President’s fiscal ’23 Defense Department request of $773 billion expected to benefit from both House and Senate Appropriation committees recommended increases of approximately $37 billion to $45 billion. The platform supported by Triumph, which are enjoying strong budget support include the CH-53K, CH-47, the F-15, T-7A and Joint Strike Fighter.
That said, Triumph’s military end market was off 20% for the quarter, driven by prior year orders on C-130 and E2-D though these declines were offset by commercial end market improvements.
This is primarily a timing issue, and we expect military revenues to recover and normalize over the course of the year. Triumph continues to proactively mitigate supply chain issues, deliveries from suppliers were 80% to 90% on time in full Q1. We put strategic order coverage in place to secure allocation of resources and protect our most critical programs.
Triumph has very little exposure to supply chain impacts from the war in the Ukraine. While our suppliers are not achieving the 100% on-time performance we expect, we were able to meet our sales targets in Q1 and anticipate recovery quarter-over-quarter with over $40 million of past due backlog expected to be retired by the end of fiscal ’23.
We are working to offset potential price increases directly with suppliers and aggressively adding alternative suppliers where possible. As a result, these increases have typically totaled less than 2% of sales and we expect any impact to be immaterial to our results.
Our top supply chain priority remains securing near-term delivery assurance and available capacity from our suppliers as the industry recovers.
In the quarter, we issued our sustainability and annual report, which includes our recently developed 5- and 10-year sustainability goals. We look forward to solidifying our path to meet these targets which are essential drivers to our sustainability programs in the years ahead.
As noted in the report, Triumph is powered by diversity where our competitive strength comes from a complementary blend of people, products, platforms and end markets. This broader take on diversity helps Triumph to be more resilient and perform at higher levels so that we remain differentiated in the market.
We are committed to creating value in a sustainable way, investing in our people and processes and improving our quality, productivity and agility.
With that, Jim will now take us through the results for the quarter in more detail. Jim?
James McCabe
Thanks, Dan, and good morning, everyone. As I review the financial results for the quarter, please refer to the presentation we posted this morning. I will be discussing adjusted results. So please see our earnings press release and the supplemental slides in the presentation for the explanation of our adjustments.
Triumph’s first quarter results exceeded our plan, and we are on track to achieve our full-year objectives. In fact, we’re trending towards the high end of our previous revenue guidance, and we expect positive free cash flow over the balance of the year.
Our consolidated results for the quarter are on Slide 8. Revenue of $349 million reflects increased volume from narrow-body platforms, offset by decreased military rotorcraft volume compared to last year.
Excluding revenue from divested businesses and sunsetting programs and despite the current market environment, we still grew revenue organically 1%. Adjusted operating income of $33 million represents a 9% margin, up from 8% a year ago, including favorable closeout of legacy programs. Adjustments this quarter include a $17 million revenue reduction for consideration payable to a customer related to the Stuart divestiture and $700,000 of restructuring costs from facility closures and reductions in SG&A and overhead.
Systems and Support segment results and highlights are on Page 9. Organic revenue was up 1% in the quarter, including higher commercial narrow-body volume which was partially offset by decreased military rotorcraft sales primarily from above-average military spare sales in the prior year period. Systems and Support operating income was $33 million or 13% margin which is down slightly from the prior year due to sales timing and mix.
Commercial OEM sales were a significant source of growth in this segment, up over 30% in the quarter. Results for our Structures segment are on Slide 10. Excluding divestitures and sunsetting programs, Structures revenue of $95 million was up 2% organically. 737 production rate increases in interiors and 767 delivery timing contributed to the organic growth, partially offset by lower wide-body sales.
Operating income improved with a favorable closeout of 767 production blocks and favorable settlements on certain 747 obligations. With the Stuart divestiture on July 1, we’ve completed our planned exit of the large metallic structures business. The previously announced exit of our Spokane Interiors facility is also now complete. The continuing business in this segment is the interiors insulation inducting business.
Our free cash flow walk is on Slide 11. Our $96 million of cash used this quarter included $21 million of nonrecurring cash drivers. These drivers included $4 million for previously accrued 747 and Legacy Structure shutdown costs. and $17 million of free cash used from the recently divested Stuart Florida business. The Stuart divestiture completely relieved Triumph for the remaining advanced repayment obligations, and we expect to be cash flow positive over the balance of the year.
As for the quarterly cash flow cadence, we expect our usual seasonality with a modest use of cash in Q2, breakeven to slightly positive cash flow in Q3 and strong cash generation in Q4.
We continue to expect capital expenditures of $30 million for the fiscal year as we invest in efficiency improvements and profitable growth. The schedule of our net debt and liquidity is on Slide 12. At the end of the quarter, we had just under $1.5 billion of net debt. We had about $200 million of cash availability, which is more than sufficient for our projected needs. We’re continuing to reduce our leverage as planned by expanding EBITDAP and free cash flow in our continuing businesses. We regularly review our capital structure and our options to continue to improve it before our next maturity in June of 2024.
For our full-year guidance, turn to Slide 13. Based on expected aircraft production rates and the resulting demand on each of our facilities, we expect FY ’23 revenue to be at the high end of our previous guidance range of $1.2 billion to $1.3 billion. We are raising our GAAP EPS guidance by $1.11 to $1.51 to $1.71 per diluted share, primarily due to the expected Q2 gain on the Stuart divestiture and related accounting impacts and a reduction in expected noncash pension income.
Our updated adjusted EPS guidance of $0.28 to $0.48 reflects a $0.12 reduction in expected noncash pension income compared to prior guidance. Cash taxes, net of refunds received, are expected to be approximately $7 million for FY ’23. And interest expense is expected to be $129 million, including $123 million of cash interest.
For the full year, excluding the impacts of the Actions and structures, we expect to generate $30 million to $45 million of cash from operations with approximately $30 million in capital expenditures resulting in core free cash flow of breakeven to $15 million in fiscal ’23.
We are on track with our plan to double our continuing FY ’22 EBITDAP to approximately $310 million by fiscal ’25, was fueled by increasing demand, pricing opportunities, cost efficiencies and improved mix of business from our portfolio actions.
For fiscal ’26, we have planned for a consolidated EBITDAP margin of over 20%, a free cash conversion rate on sales of over 10% and a leverage ratio of between 3 and 4x adjusted EBITDA.
In summary, our Q1 results exceeded our plan, and we are on track to achieve our full year and multiyear objectives. The sale of Stuart completed our exit from the large metallic structures business and relieved us from the advance obligations. We expect to be profitable and cash positive for the balance of the year.
Now I’ll turn the call back to Dan. Dan?
Daniel Crowley
In summary, I’m pleased with the first quarter results achieved in a challenging macro environment and to be done with our restructuring plan and years of heavy cash use. Both provide us with solid momentum as we progress through fiscal 2023.
I’m also encouraged by the commercial market recovery with rapidly improving MRO uptake, closely followed by OEM rate increases as our backlog grew meaningfully in the quarter. Our strong book-to-bill of 1.5 coming out of Q1 confirms we are winning new business, and our company is poised to expand top and bottom lines year-over-year.
The last 2 plus years in our industry have not been for the faint of heart. Despite the pandemic, supply chain constraints, rising fuel costs and labor shortages, Triumph remains on track to achieve our full-year objectives.
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.
Question-and-Answer Session
Operator
[Operator Instructions]. And our first question will come from Seth Seifman with JPMorgan.
Seth Seifman
I wonder if you could give us a little more color on kind of what the Structures segment is going to look like going forward when it’s just Interiors? How should we think about the sales and EBITDA in the quarter that just passed? And then when we think about going from Q1 to Q2, the adjusted EBITDA in that segment was about $17 million. Where does that go in the second quarter when it’s just Interiors?
Daniel Crowley
Let me start out. First of all, Interiors is a business with a high growth rate. They’ve been beat down to the MAX production pause. And now with that back at 31 a month, it’s coming up plus their win on the A220, which is a program that’s going to more than double in rate over the next 3 years. So they’ve got a good backlog of business.
And we’ve used the time during the soft — the flat spot in that business to consolidate from our Spokane operation conducting and blankets down into Mexicali. So that plant now is going to have more scale and more efficiencies.
So we’ve got 2 plants Zacatecas and Mexicali, plus our operations that are forward based in Europe that support Airbus. And we’re optimistic about the recovery. Jim?
James McCabe
Yes, Seth, you mentioned this quarter. Of course, we had favorable closeout on the programs in Stuart and 767 and some pickups on 747 as we mitigate those end-of-life liabilities. But going forward, what the continuing business is Interiors, it’s around $120 million run rate business, but it’s increasing faster than most of the businesses as narrow-body business comes back. It’s benefiting from the 737 MAX ramp. And when 787 picks up again, it will benefit as well.
It has been hovering around breakeven. But in the second half of the year, it’ll be profitable in generating cash. So we like the prospects. We have a good backlog, and we’re a market leader in that business.
Seth Seifman
Okay. Good. So just to follow up on that real quick, and then I’ll wrap up. The — when we think about the EBITDAP going from Q1 to Q2, there’s probably something like a $15 million headwind sequentially quarter-on-quarter from the Stuart going away as well as $5 million or so from the AMJP. So quarter-on-quarter, next quarter, there’s probably about a $20 million sequential EBITDAP headwind?
James McCabe
So I think there’s still opportunities to close out the 747 and other legacy cash obligations that we adjusted out for the core cash. And to the extent we can get them for less than their forecast, that may be opportunities for pickups moving forward.
But otherwise, you’re correct, all things being equal, the closeouts are one-time in Q1 but there are additional opportunities for the balance of the year as we get out of the legacy businesses.
Operator
Our next question will come from Peter Arment with Baird.
Peter Arment
Dan and Jim, congrats on getting Stuart. Obviously, a lot of work there. Jim, maybe if you could just update us on your updated thoughts on the stranded costs that are still kind of be lingering and you’re looking to settle. I know you had mentioned on the last call that it was upwards of $75 million potentially. But just maybe if you could just give us some updated thoughts there, that would be great.
James McCabe
Yes. Thanks, Peter. The $70 million to $75 million is what we identified in our guidance as being the — you’re calling a stranded cost, but the legacy cost to exit the Structure segment. And there’s more opportunity than there is risk in mitigating those going forward.
In the first quarter, we spent $21 million, $17 million of that was cash used in the Stuart business, which has gone with this divestiture. There is — there’s some, I think, $4 million of structured shutdown costs outside of Stuart. But going forward, you’re looking at about $50 million left roughly over the balance of the year. I think that’s going to be a little more back-end loaded.
And all those are opportunities for negotiation is there’s a search in both ways with some of these vendors, and we can work out settlements below what we had estimated if we work hard at which we are.
So that’s the opportunities I referred to assess is to mitigate this moving forward. But they are onetime. So it’s important to identify those. They’re not something that’s going to recur past this year.
Peter Arment
And just as a follow-up to that, Jim, do you — when you look now at the business in pro forma with Stuart and sale to negotiations, we’re just thinking about ’24 and beyond. It seems like a lot of these onetime issues will be gone. Is that correct?
James McCabe
Yes, absolutely. And that’s why we put out the multiyear guidance so that you can see where we think we’re headed. It’s the most frequent question I get is about what is normalized margins, normalized free cash flow.
So we have this bottoms-up plan, which I referred to, again, that we’re going to be 20% plus on a consolidated EBITDAP margin out there in ’26 with 3 to 4x leverage with the current portfolio moving forward. And free cash flow conversion in excess of 10% of sales.
But that’s going to happen faster than we think because Stuart behind us is the last divestiture, and we have good tailwinds in volumes, pricing opportunities, cost efficiencies from the actions we’ve already taken. And with this new portfolio, we have a higher-margin business with more IP and more aftermarket.
Operator
Our next question will come from Sheila Kahyaoglu with Jefferies.
Sheila Kahyaoglu
I just wanted to follow up on the last question and maybe a little bit shorter term. Can you walk us through the free cash flow for the year, Jim, you mentioned Q2 is modest used breakeven in Q3 and then a big ramp. Just given the $75 million of core free cash flow in Q1, what really reverses payables were a big usage in the quarter? Can you just help us step that for us a little bit more?
James McCabe
Sure, Sheila. I mean, there’s normal seasonality in our business, absent the divestitures. We increased working capital in the first quarter, and then we kind of have a stable Q2 and Q3, and then we have a very strong Q4, just the nature of the industry we’re in the programs we’re on.
So the cash use in the first quarter is generally a payoff of the payables from the strong fourth quarter we had at the end of last fiscal year and then a ramping of inventory for the balance to deliver out through the balance of this fiscal year.
So working capital is the biggest driver there in cash use. In terms of the cadence, you mentioned core free cash flow, so I’ll speak to that. We used $75 million of core free cash flow in Q1. We’re going to be a modest user in the tens of millions, just roughly, let’s say, $20 million to $30 million of cash use maybe in Q2 would be better.
And then about equal amount of positive in Q3. And then a strong generation in Q4 as we have in the past. So it’s going to be a lot cleaner, a lot more predictable, and we have a good handle on it. And that’s why we can give guidance when a lot of the companies don’t.
Sheila Kahyaoglu
So it’s a lot of the working capital moves rather than a big ramp you have in systems profit?
James McCabe
That’s correct. When there’s changes in delivery rates from OEMs, we still have production rates that lag that. So we know our production rates, we have frozen windows. So we have a good view of what the rest of the year looks like.
Operator
Our next question will come from Ron Epstein with Bank of America.
Ronald Epstein
Just quickly. How are you — what’s the strategy you guys are using to deal with inflation, both raw material costs and labor costs. I mean you got to be seeing it from your own raw material suppliers and then your subsystem suppliers. What are you doing to mitigate that?
Daniel Crowley
So thanks, Ron. There’s about 12 categories of commodities we track, and we looked at the most recent average requested price up and most of them are single digit. The ones that stick out are the cost of machine products and raw materials and composites to a lesser extent. But a lot of what we spend money on, on chemicals and logistics and castings and forgings haven’t gone up a lot.
And we’ve been able to mitigate those cost risks through a variety of levers. One, we can sometimes pass it through to the customer. Sometimes our contracts allow for sharing of cost with the supplier. We’ve done a lot more dual sourcing, and we’ve expanded our low-cost country sourcing beyond Korea, which was a big push over the last 2 years into India and other countries. Because there is capacity out there that will help keep people in check on price up.
So we’ve been able to mitigate about 2/3 of the increase, which has been, on average, about a 6% increase. That’s why I mentioned about 2% of sales is the impact. We don’t really buy from suppliers that are in our — supply in the Ukraine. And we’re starting to see some costs that have been high lately like shipping costs come down just in the last month, costs for things like containers have pulled back and fuel costs are starting to trend down. So long term, we expect this to linger through calendar ’23, but we don’t see it as a big impact.
James McCabe
Yes. I’d add to that. I think generally, we own a lot of IP on our products. And the vendors that are sole-sourced and that have IP that we need are a small percentage of the total procurement. We spent about $800 million this year on materials.
And we’ve done some good strategic sourcing so that we have pass-through where necessary on materials, and we have dual sources wherever possible to make sure we remain competitive. So we’ve done a good job managing it. Some of the work that was done in previous years were benefiting from. And some of it is fixing ourselves going forward to make sure we’re not inflation-proof but inflation resistant.
Operator
Our next question will come from Michael Ciarmoli with Truist.
Michael Ciarmoli
Just back to Seth’s question on the Structure. So just to be clear, we can assume something around a $30 million quarterly run rate going forward? And then just to be clear, is that — are those profitable revenues at this point from an operating margin standpoint? And can you give us kind of the range of where that profitability is?
James McCabe
Yes, sure, Mike. They are profitable for the full year. They’re probably a little unprofitable in the first half and they’re more profitable in the second half. The ramp of the narrow-bodies is helping out a lot. But right now, they’re low single-digit profitability. Over the multiyear horizon, they’re growing into the teens, and that’s where they’ve been historically.
Daniel Crowley
So we even hit the 20s in that business pre-pandemic, it was a profitable business because we did a lot of cost takeout during the pandemic. Our margin up should be good. And the most you recall, we booked $1 billion worth of business in Interiors. It gives us a 10-year run rate that we can go optimize around. So we’re optimistic on the margin outlook for that business.
Michael Ciarmoli
Got it. And then just how are you planning for the production rates on the 787 for kind of the remainder of this year and maybe how it might impact that Interiors business?
Daniel Crowley
Yes, there’s been a lot of news on 787 just in the last week. We’re thankful that Boeing appears to be close to the FAA approvals that will allow them to resume shipping. We’ve been delivering at rates around 2 to 3 a month of late. And remember, we were at 14 before the rates started to decline.
And with the outlook of burning off Boeing’s deliveries, there are 120 aircraft that are in storage, roughly half of which they plan to burn off in the next year or 2. Deliveries are expected to ramp up to somewhere around 7 a month.
And that helps us because about 5 or 6 of our plants are important actuator suppliers on the 787. So it’s going to be a tailwind for us now that they’re close to resuming production and we’re confident that the backlog of this program is almost 500 outstanding orders for the 787 and the increasing demand for widebody.
A lot of folks predicted that international travel wouldn’t pick up until ’24 or ’25. Well, it’s already back within 20% of 2019 levels and ramping steadily. So I think we’re going to hit 2019 levels in the calendar year. And then blow through that in ’23, ’24. So we’re bullish on this. We’d like to be back in ’14. We’re not there yet, but we’d be happy to…
James McCabe
And I’d add that we did reset our contract at the beginning of the year. So we’ll get good pricing based on current costs going forward as the volume increases. And put it in perspective, 787 is only about 4% of our backlog right now. To our backlog breakdown on Page 16 of the presentation. Our largest program right now is the 737, which is 16% of our backlog attributable in the next 2 years. So it’s an important driver for us, but that diversification is helping us out. 737 is the bigger driver right now.
Operator
[Operator Instructions]. Our next question will come from David Strauss with Barclays.
David Strauss
Could you just comment on the margin at Systems and Support, I think the EBITDA margin was around 16%, which is lower than what we’ve seen, lower than what you’re targeting. Can you just talk about that and how we should expect to see that margin progress as we go through the year?
James McCabe
Sure. I think first quarter, we mentioned the sales mix change. Last year, we benefited from some above-average sales in spares, foreign military sales and another OEM program that was higher volume last year. That’s going to normalize moving forward. So it was really a tough comp against last year.
Moving forward, we’re going to see increased expansion on margins. Typically, the first quarter is our lowest margin period for the business and for that segment. So I think slight increases over the next 2 quarters and then a strong margin in Q4 as volume increases.
And then, of course, going forward, we’re still headed towards that multiyear goal of doubling our profitability by FY ’25. And out there, you’re going to be in the range of 20% margins for the overall business, which means even higher for Systems and Support.
David Strauss
And Jim, on that, when you say double profitability, what is the comparable number, the clean kind of EBITDAP number that we should be thinking about in terms of doubling?
James McCabe
Yes, David, thanks for that question because I tried to point that out because it kind of gets a little foggy with the divestitures. But last year, our continuing businesses had EBITDAP about $155 million. So that’s what we’re talking about. FY ’22, continued EBITDAP of $155 million doubling. And I mentioned in my earlier remarks, $310 million of EBITDAP is the target for FY ’25, which is a doubling of that FY ’22 number.
David Strauss
Okay. That’s helpful. And if I — apologize if I missed this, were there — are there any net cash proceeds from Stuart? Or is it just the payoff of the advance of balance?
James McCabe
Stuart, besides being strategically important, the biggest benefit was the advanced relief. So the advances were integral to that business. They need to be resolved as part of the transaction. They were — that’s over $104 million of cash flow that would have gone out this year that was relieved as part of the transaction.
And we exited the business, which is better owned by someone else because it is longer cycle, more capital intense, doesn’t really have any aftermarket. It doesn’t have a lot of IP. There’s others that fits their model, it didn’t fit ours. So we’re happy to complete that transaction on good terms.
Operator
This concludes our question-and-answer session. The conference has now ended. Thank you for attending today’s presentation. You may now disconnect.
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