AIR - Earnings call transcript Q2 2018

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Operator

Good afternoon, ladies and gentlemen, and welcome to the AAR's Fiscal Year 2018 Second Quarter Earnings Call.

We are joined today by David Storch, Chairman and Chief Executive Officer; John Holmes, President and COO; and Mike Milligan, Vice President and CFO.

Before we begin, I'd like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as noted in our news release and the Risk Factors section of the company's Form 10-K for the fiscal year ended May 31, 2017. In providing forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. At this time, I'd like to turn the call over to ARR's Chairman and Chief Executive Officer, David Storch.

David Storch

afternoon good and you, all. Thank

quarter by Let began investments profitability holiday can on growth a as work solid happy support all solid of Services the everyone and me see, increased a businesses, and a you on start made season, as great very QX, INL/A that future. company and Aviation wishing will new sales the the for our into was we year. contract

and pleased gain I'm that by to in opportunistic we momentum aircraft as the team program business, benefited buys team pleased continue progress movement. exceptionally We the has our with made. with made added recently trading from I'm our also the

network with acquisition facilities unquestionably work allows to segment, Canada on the In X the us to the that contract. trading very in services Expeditionary begun have others. our we Canada the and best are Air MRO excited relationship industry. the with grow in of We our team We INL/A expanded have

We are for as Also off in USTRANSCOM rolled to key expected. start. segment, certain this contracts a off great

is contractor opportunity service the referred focus as are generally today, government what us repositioning GOCO, talent where Given to shifting resources on government-owned, the to operated, is we or -- and for model.

you last action of we the X many took. us know, been take the has impairment the As to helicopter requiring under pressure market to X years,

-- of is the some to some and the the redeploy plan assets Our sell of markets some of deploy as dictate. assets

Mike, wrap the like and open John. will -- the answers. we to turn what I'll for John that, to up I'd by followed call with do to before questions call this So commentary be over and

John Holmes

Good afternoon, everybody. Great. Thanks, David.

Gross during came with XX% sales prior segment customers in XX% margin quarter part our in benefited of we our our with profit in from of to performed sales As from year. million. supply at the the ramp in million expansion $XXX.X very Services increase growth David the to growth pleased segment this which increased the as $XXX.X and Aviation current I'm also contract, quarter exceptionally successful of commercial well businesses XX% and our in year's XX%, a program network. MRO our mentioned, to

During announced as wins we contracts well. new for the included services Canada. a few heavy quarter, we business that They maintenance with Air signed X

fleet. co-share and fleet. work Suite, at XX-year One this was work awarded Canada, of very that its sure XXX American contract their XXX well, deal that I am of Air airline covering perform under and of Air E-XXX several XXX I And to contract. delivered be contract This are are We down -- to Canada you facilities second with term aircraft. a their time fleet we Embraer Canadian and performed heavy on United with our facility. operations is supporting know newly of MRO, being going facilities, and We Air those covering and a our at an already they're also X-year the Delta a performing Miami and going acquired to XXX on were Canada's signed partner also actually family most with that AXXX mention a integration Republic to maintenance those long also should aircraft we've contract that's

generally mentioned result, known COCO movements a in over be our continue on support soft. what company-owned, as is company-operated, business, you as we of positions government to And troop last markets few know, in have the or decreased experienced years. many As the David as

and order we government-owned taking reposition WASS, are on As our assets. where the David mentioned, operate work begin in to we resources like more to on excited focus program, to are contracts action WASS

plan we known Milligan, who as generally GOCO, Mike the turn going and indicated, contracts to this more forward. over is With results detail. will of David this about to I'd more As it that, contractor-operated or like to talk business pursue government-owned, nature financial services, in

Michael Milligan

Good 'XX performance the We or sales up detail. quarter more everybody. period the fiscal company's $XXX.X same the X% of prior financial John. discuss in million increased experienced QX the in afternoon, Thanks, million, in I'll from year. $XX.X

MRO in sales growth was year-over-year. which increased more from Sales supply Services performance than parts solutions, -- in by Our or Aviation parts services million integrated growth in operating million. decline strong XX% gains Services reduced the Aviation driven in to We release. and $XX trading supply $XX Expeditionary in the indicated sales $XXX.X distribution. year-over-year Services increased profit million including at contract of the as The in segment. our from Gross million chain, services, Aviation offset KC-XX supply, and $XX maintenance $XX experienced the and sales sales quarter Services million the from in

SG&A of was million costs. $X in the and related $XX.X impacted Services expense by in increased impairment defense While completions included contract the Expeditionary the the impairment profit charge, legal period. million costs related negatively gross deal charges to noncash of contract the and noncash INL/A, the

were than sales. Excluding SG&A of expenses these XX% more costs,

We these compared our have of Day January. in levels share historically plans historical costs reverting presentation to been sales. in Investor We'll our in the XX% to the range for

in noncash aircraft million charge. of included the effect charge loss million $XX.X This share which parts. net of impact related was impairment $X.XX and Our the the quarter, represents the consolidated support $XX.X the or of write-down impairment after-tax reported per certain

quarter net for $X.X million share, income of our which we or Capital operating $XX.X per million amortization were Expeditionary and included $XX.X was million. adjusted share $X.XX losses was $X.X as or per $X.XX in Services depreciation, million expenditures reported, the As indicated.

$X.X per or quarter, paid million $X.XXX of share. dividends the During we

Thanks wrap available remarks. for million the board-authorized remains As And let plan. prepared your XX, of repurchasing share under November our $XXX David time. I'll up

David Storch

Thanks, Mike, from John, before. and thanks,

the company's recently to team 'XX you made, markets. of passed, who positive closing, somewhere share we changed code in know, we've those tax 'XX we am to in on not aviation $X.XX very change continued the rate. $X.XX will place best, favorable our there at progress, in quarter, for our world. the of that and the a on to the was January. impact plan provider strategy may a range in detail fiscal our the execute more results our for During of about service the independent Day our We'll become investments I estimate the And fiscal be and as tax per preliminarily the in provide result -- Investor in excited

participating, forward and thanks, So that might much questions for have. look to any you I so

Operator

[Operator Instructions].

from Our comes Ken first Herbert. question

Kenneth Herbert

out, you business. in versus Air the Aviation you the particular organic facilities Services the David taken the programs specifically, on how or John, really provide incremental any was called specifically in obviously, of saw the work and heavy more and granularity of you nice that the in growth you've Aviation Services. maybe just on and And programs growth parts much some MRO? with in Can growth MRO And side? Canada

David Storch

Ken, most came approximately, organic. it's in through of be that level, acquisitions at -- about But There it growth that look if would largely, X% was you segment. organic is the net growth.

Kenneth Herbert

particular? opportunity going of take just as then continues the airline Okay, is work okay. And you That's contract sort to flydubai that, update how the obviously that in Max expand that to us on deliveries of aircraft great. and within can

John Holmes

on NG will We're The expect contract contract. they extended there contract about contract additional We're Yes, the live And the -- to thanks that on both. MAX well. just is contracts asking and are our cover aircraft going for ordered. we that. the that be live two

Kenneth Herbert

that, finally, now 'XX just what obviously that's And contribution specifically, and and update you great. off an as the Okay, provide from can running? up INL's fiscal you on view now kicked

David Storch

position guess, to Investor know, like Okay, the I Day. Ireland. really better think -- early discuss I first, a innings top the that in -- in we'll it We're of be at you

a you us give time little why more that? don't bit So on

Kenneth Herbert

it. Got Okay.

throwing as to it's you're guess first but pitch, So I it's the expected? off out starting say fair

David Storch

well. believe, very that State Yes, the we've seen is department great a And as team yes. We're very field. on pleased I put we've pleased. And

Operator

Our Larry from next question comes Solow.

Lawrence Solow

know period, into is be it a there. the to I deep should you want the for view we much should that, how guess, too fair that? sticking pretty during Is you get Just tune, with that I ramp-up the guys? weeds don't But it breakeven INL

David Storch

the Well, ramp I'd the I view modest. would view is contribution, is --

Lawrence Solow

go -- yet. there Fair change So in then right? It's they're quarter? that's -- into other was And a Afghanistan services. a some -- be it'll charges? if refunding enough. -- should it's And we'll we if expeditionary, excluding that I numbers the of not actually INL, both been back to level right? and -- out the the then Or the I -- level Aviation there But don't you're lot. part cost going segments. on on was Was obviously is it's gross maybe the of right, you a is there's that, Okay, worked continue declining? paid which okay. it sort think of quarter, just know -- Was But is there? is this okay. that now the profit, in excluding it out there things this was And profit

David Storch

trying of business. our where taking right? to we're think where I we're indicate is, Larry, terms thinking In that

I see a the Day. you think comment, And indicated, can I that, Investor in January at better hopefully. position to be as we'll

Lawrence Solow

Okay.

I magnitude? size big of other of high-level, you help guess, Maybe Just the for GOCO, -- this open And strategy doors opportunities is know contract contract there? of opportunities? obviously, towards out and this the get INL, significantly you win, other you the does other not -- your the more this not and --

David Storch

believe Yes, believe so. We yes. We so.

Lawrence Solow

Aviation services... Okay.

David Storch

ahead. Yes, go

Lawrence Solow

programs for part that? it's distribution they business a as But improvement, trading portion anything Mix? And get is to type of of distribution based. Services. guessing, this growth And the sounds and that quarter It driving broad the X Just fair say probably obviously have the pretty margin had little better better behind of either. growth? and then, growth in -- high I the weren't am Aviation The MRO the still that programs probably quite is Sustainability? haven't question like have. Timing? the feel and

David Storch

across quarter, for we the question, in Yes, first the board. saw growth this

business, contributed. business, MRO and trading the programs the all So distribution

second a half you of So everybody question? repeat had your good And can your second quarter. --

Lawrence Solow

Just on margin. the gross

a margin. gross had improvement in You nice

I a MRO is actually a of lower generally historically. little think maybe bit a too, -- margin has

just mix? So is going of forward? it And Was a pulse on of it get think to you're sustainable a improvement. improvement? what And just little trying the type a

John Holmes

showed each gross business, of And would the the improvement a It margin. say, as little mix. I a was in

improvement there. And So it's sustainable. growth across to board saw sales, the believe do the similar we -- we across

Operator

Michael comes Our Ciarmoli. next from question

Unidentified Analyst

And This liabilities? and for you us is [ph] tax question tax. Somewhat assets get to walk $X.XX to Michael. Quick how of actually you a handle bridge. Les through $X.XX the there? Can in also, tailwind you deferred how the on

Michael Milligan

taxes, deferred we are of basically not that adjustment where rate we in our think tax forward we'll make be. as moving an Well, did estimates that but effective go next our estimate, with recognize we in The for that line we that'll year. in

Unidentified Analyst

also, the going? it's Okay, talk the there's how is of of aftermarket can it. do going? Officer, the over services then long-term? where kind Chief see Digital you got this And appointment And How business us significant you through evolving

Michael Milligan

So systems really cetera, at efficient. business those businesses. work drive traditional to learning will a We're to and second lot using of We're areas in more interact He is as two et to there's impact digital analysis, drive sales team. that. of it it We're ways. across is get relates And our the about way the our digital -- to people excited from is from couple on him. think data company. it our the of about -- systems And refresh to traditional them already get standpoints. ways digital, already the way whole with thinking the Andrew of One the different a a different to we're looking

thing efforts we've do robust capture of collect underway to more a ultimately, and we got be in market price analyze number So and of how to data share. terms more better

Unidentified Analyst

Got and any industry it. update last guess And expectations the XXXX, I on comment then as business on the there? for general far trends, one, shop as

Michael Milligan

trends positive inputs. of in mean see in general, we I terms

Unidentified Analyst

XXXX? say, would be year-over-year, than to stronger in expect XXXX a it I'd you year

Michael Milligan

in about talk detail bit we'll that think a I in more January.

Operator

question from next Ben Our Klieve. comes

Benjamin Klieve

Mike, of just here. $XX -- But, couple, there... had QX questions kind said program KC-XX Is $XX.X you I bookkeeping had a revenue. today. the million in last million first year, So I as

Michael Milligan

million. down You're down It to $XX.X million. $X.X It's It's $XX was right. million.

Benjamin Klieve

Got down. It's you.

apologize. I Okay,

David Storch

still some in. coming There revenue

million. And $XX so down difference the is

Benjamin Klieve

quantify okay. the it, question the are during regarding Right. the that Got award? to you Award, Air Force Gear Landing contribution then, from quarter able And another revenue second

Michael Milligan

No.

David Storch

Yes, none. can There we quantify. was

Michael Milligan

Yes.

Benjamin Klieve

so None? far? issues contract Okay. ramp But all still contract that is There it's Everything the on going of still, right? that is is with course? no

Michael Milligan

it or up ramping It's contribution will correct. ramp in you're up QX we'll period. Yes, and seeing start the as time expected

Benjamin Klieve

you it's I announcement Andrew of, the think made interesting. really Kemmetmueller, so And

about question is, going you before about was on here. before? really you Looking your drove forward a felt talked him you was What what position? you I be One to feel more really presence big do brought week, forward that, I know in but mean, this that the bit the digital hearing what gap last to of needed I addressed? have that lacking creation

David Storch

there's We of the us organizations looking to lot a back, sets they services. MRO those over we're digital Andrew's if inside a that a our months -- few conference What of we really a And we're to We launched gap. to know it person, that. selling we in long in overlapping that coordinate the him store, as have new report because had about London part at old. We few of both And ideas And Andrew the brings so got months felt group to to services skill pipeline we'll got efforts. of customers. I'd company online. add has help characterize were that to don't IT existing the whole got the that is separately. digital products. time. a we our is portfolio ability portals put in I continue have big an some for one company that We digital And then out program parts to organization we've XX of a a

-- with the ideas continuing together we're IT for looking innovation for digital team, new team and up digital So bringing come what the to from Andrew. is IT the traditional

Benjamin Klieve

very that expansion a existing a That's the question that or an in with interesting. an brand-new back you. me I'll was jump -- of Last completely Got here the is Airline, for and that announcement relationship relationship? queue was is Republic

John Holmes

relationship. We've for heavy a It's a with maintenance relationship some Republic new had time.

Operator

from comes Josh Our Sullivan. question next

Joshua Sullivan

the idea look the there. side, the any out in doing way Aviation what's forecasting and out there Is is putting advancements, quantify offering some power there. Service you're get you're hour suppliers, trying looking given you on an the new more at for for maybe of the the Just by if to out Just as your next year, the digital opportunities the pipeline? there that there airlines just to technology

Michael Milligan

product It's mature point. a pretty this at

about conference. January can number We talk continue of a to see at And pipeline. bit a about more opportunities robust we opportunity the the

Joshua Sullivan

wide-body with Okay, trends great. that And you I maybe this dynamics around Rockford America? service facility at that seeing any any North interest guess, facility your Is can to you MRO of work? in Are possibly trend? built the help the around it any point? maybe us You supporting moving work back see

John Holmes

talent, MRO for now. see on we right attracting The pressure interest markets Rockford. we different in focus to Yes, big facility is customers X certain us, We're wages. have doing to work up starting there in the continue technicians. for are And in some

Operator

Our from next Evans question [ph]. comes Brad

Unidentified Analyst

was reference that I there SG&A actually. the line. And question ex-impairment to -- I in that -- is -- there SG&A reflected item and to am accurate was that want million impact Is to $XX.X a line? just the confirm million a on -- Just is bookkeeping $X

Michael Milligan

Yes, in there's -- the is which million $X XX SG&A costs. there, and There related incremental incremental legal exactly. and piece deal included

Unidentified Analyst

Which forward? going considered be non-recurring will

Michael Milligan

Yes, that's right.

Unidentified Analyst

XX%. And where say XX%, that we like tax should it

reported So set that that's $X.XX number the adjusted? hit you about as $X.XX to

David Storch

right. sounds It

Unidentified Analyst

Okay.

correct? in the closer one the power the earnings to... to true really $X.XX If So quarter than $X.XX, is were

David Storch

items, out is backed correct. you If exceptional the it

Operator

Larry question next Our from comes Solow.

Lawrence Solow

portion The backed on out of Just million didn't $X.X that, already you thought already -- confirm question, you I right? to Brad's a impairment.

backing the $X.XX, was $X million $XX.X am $X.X if million out Included that while the the legal So in not right? it in right? million for thing entire the already adjusted you as restate other that only didn't your right? mistaken? you're I but mistaken. portion I'm in unless only You you Hello? When in of $X for adjust fees, SG&A, it's charge, So million, you

David Storch

to -- what answer the $X.XX you $X.XX. is So add would $X.XX so to or the another we run say the rate

Lawrence Solow

or $X.XX $X.XX?

David Storch

$X.XX.

on And the SG&A. $X.XX the of the the another in So $X.XX one-off indicating exceptionals at that the losses is you business. got top $X.XX, the we're what for

Lawrence Solow

to So included but you release, The annoying is just then the in question. you to to $X.X to $X.X very $X.X break the an additional sorry in referred the Brad good in is actually out press be right? and [ph] that's the and text referred a $XX.X And million. clarify, you that million,

David Storch

included is $X.X the the million in $X.X of million impairment.

Lawrence Solow

Right.

backed the backed $XX you -- that's million, out total the out? $X.X already million You right. whatever in or so the Okay,

already $X haven't the you only That's that it's So right? backed Okay. out? million

David Storch

That's right.

Operator

questions at further time. this no showing I'm And

David Storch

clear. be Larry, just to

it's indicated. million that we plus So $X another $XXX,XXX

So that the to you $X.XX, gets $X.X it's million okay? question? $X.X Next million or

Operator

further no time. this in the questions showing I'm at queue

David Storch

happy have well. everyone Thanks Okay. holiday. and a Be Bye-bye.

Operator

conclude participating This program. does and thank Ladies you in today's conference. gentlemen, for the

Everyone, may a day. have You all disconnect. great

AAR (AIR) 21 Dec 172018 Q2 Earnings call transcript