AIR - Earnings call transcript Q4 2018

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Operator

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

We are joined today by David Storch, Non-Executive Chairman; John Holmes, President and Chief Executive Officer; Mike Milligan, Chief Financial Officer.

Before we begin, I would 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 would like to turn the call over to AAR's Chairman of the Board, David Storch.

David Storch

sir. you, Thank very you today participating. for And much thank everyone Good afternoon. you joining also XXXX discuss our And results. to full-year most for and us thank quarter recent fourth I'm Officer, and by the third the my very the AAR's only open company's in Holmes history. successor, Executive John as call Chief new CEO happy to introducing up to leadership great markets, President, understanding in great and as role Services and John's it greater a entrepreneurial our Aviation to our businesses, heights. of skills, our take he's to drive In leading shown company the skills keen, over strong even sense in I'm very excited his to new as watch John perform CEO. role

team Forbes our also dedication This the was period entire enabling the company's I'm I'm list we Best to in for Before AAR walk continue to America's had to pleased over finish you successfully XXXX. Worldwide Aviation to us Together the the company John, named that spirit, momentarily. full fourth validating solid of to the highlights at to and Employers incredibly talent. quarter and to is Mid-Size AAR share of reflection fiscal contract handing June. contract culture, share thank will also the a their award. especially commitment, that strong a end proud of entrepreneurial John, a through since we and our the very I'm attract with team world-class has call very transition pleased are overall to of proud for want Support INL/A the completed the Services year of

the call turn over like I'd what company's to with So, is, do the John results. discuss recent to that,

John Holmes

the to thanking lead for recognize to want XX look him. and Good we succeed to also like I'd really and a opportunity continue David a outstanding leadership four will grow I for years tremendous to as David. the organization. strategic friend AAR exceptional begin David guidance of by his service you, it and truly David we and been to to has everybody. is to mentor afternoon, this for Thank David for honor decades company.

to QX and very pleased full-year are FYXX report We results. strong our

we For across double growth businesses. of performance through all our strong full-year, the sales drove digit

were million and and billion sales excluding to driven up which impact and million of prior MRO Program, XX% government parts the year, or primarily sales wind-down sales This offering. KC-XX Our XX%. $XXX by the $X.XX increased from supply by of the lowered the activities, is industry-leading our programs, commercial $XX.X

program including Afghanistan, first As our David program Force first $XX.X mentioned a and WASS contributed income transition, July rate. month and we've the and fourth the In in Iraq, month the Panama, fully minimal sites full Patrick the two earlier, Air is at run quarter, be Peru, we million And will completed quarter, have full This now partial operational in program of sales operating contribution. of one had months with the Base. operations.

primarily and primary performed billion three be defense of contractors mid-FYXX. Army this will in be to support task of one U.S. $XX operations. well We're or as significant The the During wins, for aircraft notably management as equipment program. support U.S. the the awarded indefinite-delivery/indefinite-quantity and Army contract supply work we had first our by initial continental orders IDIQ U.S. seeing pleased several quarter, outside we're on the our maintenance, in IDIQ chain in anticipate most

was our governments supported have global the in also a all SG&A included taken and Based our MRO also by of support initiatives, that with expenses, extremely cost this our focused a Precision to historical critical Sumitomo our training path supply personnel on addition, taken AAR we business. and a of a our new other to to FY distribution sales will capture successful family. as warehousing well be and exclusive to we year on and see This was particular support business FYXX. back for to We've the the our attract continue component our XX% and technicians, for team at enhancing businesses, SG&A new with as we partnerships bring expenses more of recruiting and which these In customer our efforts saw and reduce long-term experienced agreement contract you facilities, Products our network. resulted internal government tax We're programs. certain robust across execution severance modifying moves mentioned in team, awarded in challenges which level new QX. the the Overall, address in experienced year we're including forming during our parts commercial focused QX structure last all and schools, engine see significant AXXX offerings. our to on actions demand global local several reductions, of of programs actions of also to XXXX quarter labor we

Mike are strong have and call forward. prospects turn We With feeling over good about the very Milligan. to I'll our that, going momentum

Mike Milligan

I'll a QX in financial XXXX to detail. Thanks, performance afternoon. minutes full-year Good more few take and John. company's discuss the

the experienced ramp of Expeditionary with sales Aviation Our prior in than $XX.X KC-XX distribution, $XX.X XX% in contract sales segments, INL/A more million WASS and up Expeditionary gear million quarter the landing to The drove increase, maintenance strong an million in while revenues. airframe in $XX sales $X.X from revenues, from the sales decline Services a the offsetting million services, $X.X year. year-over-year. trading, Services Services million parts increase million Aviation increase both experienced were million, including combined We of growth Services or X.X% $XXX.X in $XX.X

restructuring XX.X% quarter as to compared increased increased well changes. restructuring gear share or expense prior increased supply, Gross to quarter, XX.X% increased sales severance and deferred continuing parts from in were unit million year. higher tax was million and Services re-measurement diluted see or from in higher $X.X to in charges or million during continue prior $X.X compensation $X.X the X.X% SG&A Net $X.XX depreciation by $XX.X quarter gross the stock-based per operations expense or XX% the and impacted per per $X.XX Income $X.X or benefit SG&A million, $X.X excluding the continuing expenses, $X.XX was of Aviation as our adjusted in of $X.X profitability. were sales $X costs, improvement million, for Expeditionary rate. impacted operations and including profit amortization million costs, maintenance, profit per for from $XX.X share, related interest through. higher We profitability, U.S. Gross XX.X% year, compared in was million. sales the to $X.XX year. diluted personnel-related borrowings flow share, income tax and diluted share. the the law to and Adjusted compensation profit Overall, per Services to $XX.X underlying $X.XX or increased million severance million sales airframe million of by last $XX.X million share due business the landing from improved average as was and million. $X.X to million and tax interest $X.X Capital expense expenditures were compared stock-based

Aviation were Services Our the KC-XX million wind-down. the XX% million, $XXX.X $X,XXX.X Program sales the up impact excluding full-year year-over-year. million, or sales of $XXX for grew XX% or

services. to – increases million as as sales million. mobility as Aviation well WASS XX% Gross year million from KC-XX by profit from in gear the airframe for from airframe $XX business programs maintenance flow Services supply, distribution were landing or Gross were through. landing contract parts sales in Expeditionary well million XX.X% ramp-up gear $XXX.X million and sales increased sales $XXX.X from commercial driven Our profitability. Gross as and the maintenance increased down Landing or higher and improved increases our $XX.X $XX million growth sales and increased in and activities $XX.X our profit gear forward. sales XX% in INL/A from and XX.X% unit. sales will Services to the $X.X for million and million profit or parts $XX.X year government year, minimal or the million grew going $XXX.X have Services prior Expeditionary trading our

per the of the $XX we interest $X.XX and were adjusted $X.XX from tax stock-based $XX.X $X.X re-measurement we per amortization were borrowings were elevated of $XX.X $XX.X for rate. average SG&A margins for deferred costs, excluding related well restructuring related $X.XX tax $X.X including [ph] last grow Adjusted personnel $X.XX were the compared compared and to share million changes, expenses, severance year as into improve of prior the Depreciation and higher share. we $X.XX the or XX.X% Income share, or the costs, or share. year. million, which and continuing legal share, per tax by and fixed were diluted to income impacted as well million, for during per leverage year, operations share per fiscal for million. to charges million compensation law million expense million diluted by as million and Capital our XX.X% our from million. compensation, full-year severance charges Overall, as expect to XXXX, to underlying to in the XX.X% $X.XX the the restructuring and higher As due the expenditures year, or $XX.X sales or of operations prior year. the business million increased sales per was cost $XX.X benefit $X.X from the expenses U.S. year Interest impacted SG&A increased stock-based charges were year $X.X continuing diluted forward restructuring compared move in our as structure. severance was

our operations by flows positively accounts $XX were financing, cash Our million. receivable sheet generated impacted off-balance which

made and investments While maintained interest, share during in back million with average the the to our liquidity. or Thanks we returned $XX.X shares. approximately million dividends we $XX.X that $XX.X leverage confident repurchases our XXX,XXX through $X.XX are I'll year, business share Overall, borrowings turn for over year, call during we significant of to the your higher and shareholders we of experienced that, and And we per the or John. million low units. in

John Holmes

All Mike. right, thank you,

million from half a reaffirm As cash deliver FYXX, $X.XX share, and includes earnings this out for operator the the EBITDA our very of the share in continue continuing your growth. per sales operations $X.XX continued strong which questions. customers range time our confident team of will of performance. and point, for We will a at year we'd to $XXX I'm diluted of I'm in our a we I enter in At our and our over second range in to to to interest billion; another to and businesses million. share of to $XXX FYXX, we you adjusted point, to to to we AAR. $X.X in back turn that Thank the And for turn like it proud in the be do $X.X to billion investor expect guidance the support expect of net year. range this positive

Operator

Instructions] from [Operator Our Canaccord. comes Ken sir. of of you, line the Herbert question Thank first

please. question Your

Ken Herbert

Hi, good and afternoon John. David everybody congratulations and

David Storch

Thank you, Ken.

John Holmes

Ken. you, Thank

Ken Herbert

I a and that little XXXX, fully what's can in fiscal I remind if just running been sounds first contribute an on ramp's implied from now, does but wanted know XXXX? contract. for fiscal could expected, what EPS up the it's than to us slower I you the just but ask, or for it like particular INL contract guidance, revenue again question standpoint, the a

John Holmes

delayed Yes, from in and slightly with about that to contract start. it's talked close $XXX consistent it's what million with XXXX, in about range FY we the a revenue standpoint, January,

Ken Herbert

on changed And program haven't Okay. margin your either? assumptions that

John Holmes

Correct.

Ken Herbert

the Okay. And more flow cash like expect XXXX, investments comment, second just flow, it I end half the sounds do first a be than as free very in to then year on at cash you your positive Fiscal of John, free see follow-up, benefit is think half if expected – what's program you may be fiscal positive from off-balance should that flow, as do start XXXX? full generate how cash about contributing part year but sheet the you that about the or to how of free and in we think we the could,

John Holmes

second terms in the full-year at accounts year. the I communicated and in flow ahead, you right. that in first And in range the Mike. which positive cash of conversion of – of for net the flow We're to would being be said a looking go at January the investor that You're XX% the as the Investor we year receivables EBITDA Day, for half cash half our going still viewing the generation We're year.

Mike Milligan

Ken use the of consistent. will the facility AAR Yes, can I that assume be

Ken Herbert

XXXX? to so Okay, sort neutral XXXX from of

Mike Milligan

That's constant. Yes, right.

Ken Herbert

Yes, constant.

Okay. Thank much. back Alright, there. it I’ll hand very you

Mike Milligan

Thanks Ken.

Operator

you. Thank

comes question from next Ciarmoli of the of line Our Michael SunTrust.

is line Your open.

Michael Ciarmoli

kind optimistically the Aviation normalizing guys. you guess provide sharply in decelerated there, trends about comments quarters. for the prepared additional KC-XX, just talked of continuation Thanks across Maybe Good what color or for any questions, even evening of a pretty there, you're and you taking the the of congratulations. most pretty business, Any touch John, quarter Services, this start I growth on surface? but prior the under new the of saw versus we could trend seeing the

John Holmes

if been have – in been we don't roughly take We KC-XX, X.X%, to the range we've XX%. is X% communicating, would which our growth that

see see, demand continue across trend, to don't we So, Aviation I the in we it of any unit. mentioned, the a start all as of businesses Services as

a wouldn't short been expecting. in-line KC-XX the trend I view of So, and X.X% out answer we've is as backing is, right with that part what

Michael Ciarmoli

if that airlines pressure, that measures are you taken touched can or margin what about implications for there, or then – you've for target SG&A to labor and Okay, any XX% be of going across about implications should have wages, kind we have increase to think potentially that labor on some passed passed that hitting XXXX? how you fiscal and the on any to pressure

John Holmes

Yes, where I the we would things see view and on differently those the pressure. that's hourly two labor

As communication. in are mentioned in we last certainly I call, the

customers labor the us customers the of thing last our downstream implications costs. for are the to supply potential tightness price and is, The in them. the see All raising aware that the to want of

season out can are and real back after doing back the summer I what with felt hangers a in there aircraft we number constraint was got when don't we up mechanic. labor options back to, pool. we were there of we other came and the the mentioned the So, broaden to the that The looking for when flying

We year. are year well versus this ahead of that exercise last

the to margin. cost relatively had some far, to bring And We've nothing it so that but it's of the try based increases we're at and the terms monitoring organization impact certain a consistent on point and something is into that materially tightness people within I that, labor make to is we've certain that to would been this experience on why at the able that levels said of the in base. get trend wanted organization, Having the which closely, up. supply targeted

Michael Ciarmoli

SG&A impact the dropping it, XXXX? have and shouldn't that XX% any Got on to for fiscal

John Holmes

SG&A. in not it's No,

You've got labor cost, direct – those right. are

Michael Ciarmoli

it. Got

Okay, perfect. Thanks a lot guys.

Operator

[Operator Instructions] you. Seaport from of Our the question Thank next of comes Global. line Josh Sullivan

open. is line Your

Josh Sullivan

afternoon. good Hi,

John Holmes

Hi, Josh.

Josh Sullivan

It ramping couple How next just see you that nice expand do seems win. on contract? a like the Can you the WASS vehicle over of years?

John Holmes

IDIQ. business So, IDIQ. we is And we on the one are contractors three of large component. are on There the also small a

IDIQ that billion that task as were the the three And contractors of orders order. the there to happen XX-year we'll its will what up So, smaller of will out, we orders And those separately. is, against each out, task $XX come IDIQ other over value bid And next contractors. are compete period. on for was comes what one task

task winning the size on is step point, ability the order, is, At we the task don't into task to the or individual of $XX IDIQ but contract. the the work step next to pretty billion on duration the first the to scope the themselves. to bid visibility – this win Obviously, we orders. have or compete it's to getting on actual further do So, win have with order opportunity, significant ceiling, that have the

Josh Sullivan

globally? aircraft of us trends And or you provide the themes of then, just pace or parting at thanks. scrapping out Okay, any point, any color could on this emerging

John Holmes

and to assets. think specifics going business market, competitive both being say for right higher fleet general, ahead of I others. and engine airframe the we're securing of trading see there want that don't on certain in that to for demand I on are able classes key and In reasons the by hands your and but based there classes demand that out certain suffice but the get the in asset continues getting good, out to look pockets asset than get We is demand obviously into are certain movement going material. to

Josh Sullivan

you. thank Okay,

Operator

at Thank time, closing call over the David to back Storch this any to like you, turn and for I'd remarks.

David Storch

of your mind Thanks keep are Mike just back growth, in on year participation. organic XXXX, the growth this we forecasting One on you. your comment deceleration XX% enter revenue Thank for we year. fiscal as in comment

today, Thank ex us been you new into deceleration the all for well. get your year a have from slight prior may year. exceptional there ramps the fiscal rate a that, we're quarters, and expecting into and KC-XX to growth And with So, that's that however, think you. the participation for good way wish I thanks wrap,

Mike Milligan

Thank you.

Operator

sir you, conference. and day. wonderful you This concludes Thank Have and thank ladies gentlemen. a today's

AAR (AIR) 11 Jul 182018 Q4 Earnings call transcript