AIR - Earnings call transcript Q4 2021

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Operator

Good afternoon, ladies and gentlemen. Welcome to AAR's Fiscal 2021 Fourth Quarter Earnings Call.

We are joined today by John Holmes, President and Chief Executive Officer; and Sean Gillen, 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 the company's news release and the Risk Factors section of the company's Form 10-K for the fiscal year ended May 31, 2020. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. would and turn CEO, I to call time, President AAR's John this like the to over At Holmes.

John Holmes

and discuss Great. everyone. Thank fourth to I afternoon XXXX quarter our appreciate you you, joining us and full-year fiscal good results. today

year Find I air the moment on zero fiscal AAR, I levels never than has our Day, to before Every travel tested I'm fiscal to been Before last to the reduction The to endurance of year depressed reflect the a is XX of them our previously crisis throughout That delivered. like for our to say Way. the strong our of results, industry and has employees it focused able of are emerging months, a now nearly their commercial company have our customers persistently comment take we want agree important hard even be would to this began I traffic stronger, of and proud we last and from their support. the year. over I'm on to we been thank company. for more a results to commercial set and to more the was that commitment that and an And passenger one pleased continuing to imagine. shortly values, At have

from ability reduce to demand decreased per diluted for our the $X.XX impact operations billion also costs reflect and impact. to COVID-XX XX% earnings commercial continuing Turning from our XX% mitigate $X.XX share. to that $X.XX the share decreased but efficiency billion share These sales on year per the results $X.XX our increase air travel, to team's of per for to and adjusted results, from

began. recall, hangar hangars already as the QX pandemic aircraft partially you by work was As only completed when were in year of our the impacted last our on may COVID that

to I'm share. pleased quarter from earnings particularly $X.XX per up the to and As report report X% such, that more continuing share per million that were diluted were operations even to fourth I'm $X.XX share up per million, for XX% from $XXX pleased $XXX from sales to adjusted

from increased to defense Our X%. growth our was our performed as in maintenance their to well of to parts commercial supply The the EPS businesses and government our our airlines quarter advance and recovery programs' and diluted our and was Parts inventory. was for strong by seen quarter. contracts. the performance activities Notably, recovery X%, on operating existing and business. margin return of much driven the total sales as Sequentially, margin, X% supply did the as our up We quarter not MRO which of X.X% customers EPS continue XX%. performance travel customers sales operations the the year in leisure yet performance X% an operators reflect is increased a of summer strong higher in not adjusted our was one government adjusted consume the that our X.X% have anticipated as we third in commercial growth in in to last basis, growth sales saw

$XX.X Turning quarter, million another cash, we from strong as continuing to was generated operating it operations. from activities

of to accounts program. also our receivable We the financing usage reduce continue

operations our year program, million. Excluding cash results continuing for from in three $XX.X operating our flow reflect activities was from key the areas. The impact of that AR the accomplishments

unprofitable in and several reductions business, completing contracts to the of or our costs been of making to pandemic divestiture and moved quarters. programs' costs, at reduce underperforming efficiency. facilities, Composites consolidating optimize exiting multiple portfolio recent the outset our variable our and did restructuring this quickly for the fixed We First, we which by commercial had permanent

engine a GE Second, United extended business. to Navy We its an with the win were for a expanded used Rockford new to and Fortress our support serviceable subsidiary provider facility. our Unison. certain MAX in material we relationship -XB with a and on XXX a We We distribution with entered expanded provide fleet. heavy signed to multi-year agreement of XX-year CFMXX-XB recently, C-XX our most the And supply contract XXX particular, continued that from agreement created components. into repair we types. exclusive maintenance In Honeywell be partnership with important we awarded follow-on to

the $XXX activities we us focused can Gillen going that we levered growth of a we our support well one allowed Finally, continuing in our made We actually pandemic that is debt generate operating in times a generate down-market. are and There we when Sean cash under entered. I'll notwithstanding capital over to that over million which commercial aviation growth. they to detail. that management, exceptionally investments our even lower to forward. discuss turn the from operations, results to With as few fund cash now companies new positioned result, And with to than are from emerging a very balance on CFO, demonstrated from working that, business sheet level in are and the it well more

Sean Gillen

Thanks, John.

year performance gross MRO the in drive XX.X%. we our up in slightly, Composites through up able Sales segment where gross margin continued were Aviation increased million, quarter and prior or XX.X% was quarter. versus Our $XX.X improvement the as XX.X% in was profit were $XX.X adjusted by divestiture profit in This business. Expeditionary year Expeditionary Services down margin segment margin government, of well X% quarter. commercial. year-over-year. X.X% relative the quarter reflecting taken. in versus reflects actions in Sales $XXX.X driven of million our million. we've in in X.X%, were the $X.X profit Services recovery our commercial profit been strength Gross to the the strong our in activities margin Aviation as efficiency was profit gross XX.X% sales Services the And have increased million the Gross in Services prior

events commercial would in market commercial margins. the by to strong profit our driven As of certain which gross Gross within the overall occurred well million during XX.X%, government related Goldsboro continues to Services. facility, adjustments recover, which Expeditionary our business closure margin was higher as the was $X.X continued quarter. that performance supported include Mobility activities expect The in the quarter as had we our

and our those the the consolidation into Michigan building. We estimate of reflects have sale adjustment Mobility's proceeds completed of Cadillac, current our facility, operations from

contracts our forward, Looking subsequent the programs' commercial was to QX, one of terminated. of end

$XX between in of fiscal quarter result, This the with and $X expect for As first termination, recognize contract complete. million are to we in recent charge a impairment programs been largely our in underperforming actions commercial 'XX. And had this restructuring quarters. of million us

exit just recover. approximately or of million terminated which As collectively Composites have divestiture we closure contracts pre-COVID business, $XXX of the activities, contributed the over maintenance of the the I including Duluth as sales, restructuring John taken facility the steps of last certain described, operations, and along our contracts. to heavy underperforming year will annualized described, certain These markets our commercial rationalize return with not

SG&A is sales. prior year now expenses from increasing was an million, SG&A part increase only of despite in However, our up $XX.X the operations what's quarter the adjusted On of absence the profitability. million. were in basis, $XX.X $X.X these the quarter driving million

reflected cost SG&A actions. quarter reminder, in year a the As our reduction already prior

For fiscal in certain 'XX we compared increase as improved would years. that 'XX, modest to we year future in SG&A as such expect performance in digital a invest FY drive initiatives will

as driving a as on We continue XX% percent SG&A focus to lower or sales line to top recovers. of our

our from operations flow continuing cash of we generated reduce continued operating we inventory indicated, balance. to activities million John as $XX.X As from our

by reduced we in $XX.X quarter million million. addition, receivable $X.X the $XX.X to financing from In our million accounts program

remains our the a with $XX.X sheet result, debt for million at only last versus leverage X.X net call to Thank year-end year. of was net end I exceptionally back million turn over now As John. as of our times. And your attention, balance you the of and will $XXX.X strong

John Holmes

Great. Thank Sean. you,

USM the parts although rebound and a of that enduring that tight we technicians ongoing when of aware a our established that flying that to expect well, early US are we travel. in forward, business behind recently return market that well, We've both skilled and increase Looking particularly investment parts in us recovery seen international business indicator and Also, recent modest efficiency lagged and some as and and leading seen have retain to has optimistic nice performance continue are new drive domestic the continue. to leisure recovery, coupled we we will is that in the programs are while maintenance significant market, commercial labor-related train supply signs of serve in the in hangars. those activities. our recruit, have our with believe to note, a heavy both differentiation to inside innovation programs we of labor in On the

On as been procurement as we the of we that C-XX government performance the is recovery administration programs our build government come in valuable of to air The expect by of very the underscored a under in side, and remain delta to which strong position and pace a past emergence taken pipeline the the the market for Corps, growth to completion, has our uncertain, strong strong. a buying cost normalizes that program moderation and but some to share, pace remains continue have the do commercial Marine previous natural us, continue such variants. which actions for aircraft us and put reduction continued travel to take of path we've the the

not issuing we such, are guidance. As full-year

performance However, than modestly in to is see similar QX. we term, that or the in QX immediate expect to better

QX you strongest typically our our As QX quarter, whereas is typically slowest quarter. know, is

would from normally, to see QX. decline QX So a you

our expectation belief our performance year's recovery. markets However, of this their reflects commercial continue similar will that

and stronger entered optimize to pandemic, where leverage we and and continue positioned, when to to longer it are our gains, to we margin are efficiency going With the we I'll and medium strong the over sheet term, we balance are that, exceptionally today questions. the for growth expansion excited portfolio well were turn we forward. drive Over operator than

Operator

line Instructions] comes the from [Operator Thank you. question Spingarn. Your Robert of first

line open. Your is

Robert Spingarn

afternoon, and John Sean. Hi, good

John Holmes

Hey, Rob.

Robert Spingarn

Hey, little you see wanted a couple there. on I a could we things expand to talked just if about. of

first perhaps that quarter how MRO back throughout looking talking and and just and parts, at separately about the trended First, QX then, into quarter? the

John Holmes

continues return I the the at that for go throughout continue seen we a have relatively a current we to as a That's are to of decline and last seeing the in the side and I quarter be performance there. on MRO on this Sure. stable earnings bit the activity as In aircraft flying. which beginning unusual. we most businesses steady commented into sky parts MRO see of was QX, case first think usually the improve quarter, bit summer call. the in The parts' case, notably trading and more throughout just a to this the did quarter. we slightly improvement of

Robert Spingarn

there is where obscuring the weakness maybe John, strength anything seeing cargo, numbers maybe we're from in And obscure some passenger? in deeper

John Holmes

cargo on as stable early relatively mean, quarters the throughout say a it's bit been I'd we market. turned the to we pandemic. now, saw business been that growth last relatively But No, I has attention for the several of again entire our stable.

obviously seeing travel I here in is pacing air think ahead US. the what is you're

you're some on suppliers. inventory opposed of from had as burn the that our larger so, And through to seeing they buying customer’s shelf

the that We expect see business through most parts an in quarters coming parts activity. inventory. in is of expect the But international the to activity end our and used they parts and to as new business in and the burn world our that come rest to more

You've a I'll come China, back second. that in got with one markets exception, to

of that the we other terms in pace the got behind flying hand, has business And are domestic recovery You've has But several the that China year market. as had impacting -- has overall you And in largely markets certainly as on the for a been and activity. well. in actually record that's way the been know, of China parts their just flying recovered months.

Robert Spingarn

when with recovery different next, and well the sort you which the parts. and so to to to about pieces term When I into wanted segued what overhaul look ask about largely You pretty mid-XXXs, beyond it regard think at is to recovery to MRO you know to for an you I'm look then, Services What Services, near of you Aviation think then, the the of and what separately levels, get are the to -- at in million; number you happen Aviation frame pre-COVID the saying? $XXX what how do parts? needs you

John Holmes

Yeah Exactly. sure.

you that So being will, accept, availability more work we we in the disciplined the about more on post-pandemic of to was if labor today. level profitable before. able choose the We're of hours, had but reliance the less produce in we work much a that MRO what than business, volume with than we're on take really we're matching had skilled what labor labor and very a much that heavy contract achieve we pre-pandemic, to to

So, business, America footprint better but to North and we that it's capacity, to based in business footprint than and the we with we'll supply look a the maintenance most more the current be at possible labor potentially were based labor heavy we our profitable bit than said we smaller align footprint pre-pandemic. than at look labor Having availability what a on where see of on have today. continue that ways in that, much

we're something So that's monitor. continuing to

parts, talked pre-COVID to in we've would levels USM material Obviously, as beyond about potential the on And over parts the we agreements over an we And the remain definitely of next add even the announce, more on are side, There more in market, on a contract of increased very business customer side, we after. couple on that that the we then, have be bullish on a that the to to distribution but done in of growing that restructure. that levels. that's for used intend we greater of the the pipeline acceptance a announced as see as indications in prior both from a we supply, we government to see programs, was sure well indications market, based exceed that last aftermarket. business. actually of pre-pandemic, is and was see of new more quarters than this early for at business very, that commercial that that On plan finally the new business years. parts' likely disciplined number pandemic better smaller just business, It that base place the participant we than we It's business, out there we've years. in to to still go even that be the lot pre-pandemic. work based we on material but business but a it need it We've make of much potential side the couple the about growth the commercial

Robert Spingarn

relative in be capacity Where capacity? a in way Okay. of the is question. terms to two one just And part we've your to maintenance then that there to the gauge away of the capacity. some up, heavy of that have? gone is, your question utilization of finish this during there Part COVID, anecdotally hangar MRO That's you are shortage heard could capacity globally has a and you

the are questions. those So two

from is you and a utilization at current there and a shortage that share market Your whether help some point? does perspective

John Holmes

Sure.

ability again, looking still as of footprint, we on measured capacity capacity full-time of terms measuring lot at In our left, have capacity but our a labor. to really we're skilled attract

on that want bit, We to rely contract is don't we did but pre-COVID. a heavily using we labor are as

as that's not at as has see out at elsewhere America point. on where -- said elevated maintenance think aircraft And and to the the seeing maintenance that activity you'll looking There's to we're opportunities globally I down but in lot come an capacity I And the that available footprint, if back would amount a and I of certainly we and overall, capacity been mentioned, with expand definitely that deferred is -- is skies. There we're there here shortage right see of now. you're our full done. labor a North think where road. having our that, realign of to then, this based terms there labor, in close pretty So we're which potential

So is with that the a comment there shortage. I agree

obviously lot these we but that remain hold want as by service that time, I we've in last the gains to beginning, think quarters. our to we a the moment driven efficiency goal to -- work, that's return achieved of to which because on a very take just mentioned in work the I on is in of about we production couple disciplined, is

Robert Spingarn

Okay. help, the John. Thanks for

John Holmes

Rob. Thanks,

Operator

Michael Ciarmoli. Your next comes of line the from question

Please is go Your ahead. open. line

Pete Osterland

is Hey, Pete afternoon. down good This for Mike. Osterland

First, planning that color just you're you a margin even your you're are any incremental terms margin more help inflation near-term Is outlook. to give in cost of other still little get efficiency any wanted you hand, implement And leverage? fiscal that there more on there on 'XX? to could operational specific points pressure the experiencing start as

John Holmes

improve terminated was we've changes that. lot largely Those a recent as structural we've are to contribute that contract terms margin. of done. this to that So, Sean done in And mentioned will the most mentioned

The that of the in see improvement lot in been as the profitable more that come done. a has recovers of margin medium majority term to will parts expect So we our activities. the revenue

over from we lion's to from longer that see So should medium I would our say initiatives. of term. coming additional I to certain say would will come share the term, improvement digital margin the longer expect

coming are will We come add our particularly that start through to should of inside that in that in quarters term the terms investments long area But that made. see efficiency operations. you'll hangar we in investments making

Pete Osterland

Okay. you the to lower just be small Thanks. company would ask wanted business, and average, your business? given And open alternatives relatively considering for then margins Expeditionary just versus size on that the strategic of the business to the

John Holmes

doesn't we long an as aviation It's not continue articulated to something term, necessarily portfolio, services with we align certainly, strategy we but the is typically look at several that evaluate. our And years company. strategy we that discuss publicly, ago, be anything to

Pete Osterland

much. very you Thank Okay.

John Holmes

Great. Thank you.

Operator

Thank you.

from of DeNardi. Joseph line comes question the next Your

open. ahead. is Please line Your go

Joseph DeNardi

the in quarter? Thanks. adjusted or what margins can margins. commercial give John Sean, us you Good were commercial afternoon. guess, I

Sean Gillen

of adjusted of you gave the the to margin of kind at don't take look We and some close GAAP. on I break but Yes. adjustments in terms it's that can margins out of kind relatively allocate a that, but an basis, the

Joseph DeNardi

Okay.

Okay. difference geographically? you're longer you inventories back much kind to differently the business, they do US just any of being of to parts' come before you And management have from whether then market? John, of there standpoint? side of how can Are kind kind down And about on the to behaving be the foresee seeing an talk inventory airlines able burned

John Holmes

started noticeable airlines And and USM Yeah. and new terms ahead down. burn parts to -- being the US on mentioned China, both Definitely, the see by carriers. we certainly recent airlines some US that's in in the US largely well of of activity inventory weeks, that just I are businesses, as pickup driven in outside

time. same that expect up the the of curve back we open very we that facilities get around down And into come has the through calls subsequently mentioned they've Canada, as encouraged ago borders. network yesterday in to this followed with an going two the do And a a Canada got you'd We've see We the business as shut see to a up flights And were kind more that world been out of lot of putting a couple timeline Canada. got that great be announcement occur for example, result. in Air largely service. aircraft to announcement they're I there.

I'm type us. and go purchasing you they have expect curve as on thing return we they same to kind world, see of they those airlines same. assuming what the the shelf will will are So the vaccines deployed through through around that and burn where of will from the will the

Joseph DeNardi

Okay.

that starting it's And Could go characterize at and contribute. is Fortress, run that how whether mentioned until great. contribution think rate has I running? fully to is or much John, That's you up the then, Okay. that, to full left on yet, you

John Holmes

is well. going, the going That's actually really Yeah. program

Fortress is a great partner.

yet so, that see us. right are on pace. that induction say they that number -- they are pace but engines did the to are through shipments The being in on the now right of with are would right the QX. the with far, money I engines we The the processed expectations, to not is being coming and engines to bookings bookings So of in starting customers, you and marketed on our or are parts repaired very are this so are see significant quarter being

more bit would shipments You will the fiscal this rate. in in see be And we'd expect actual later run terms year of QX. we at quarter, in a full

Joseph DeNardi

Sean, Is great. does referenced, and That's $XXX And that headwind? the you programs the capture what that million then lastly, Okay. C-XX the was? commercial just that

Sean Gillen

No.

look or business closing then, exited taken like that's a the Duluth exited. the, activities, we've So Composites was or be pre-COVID just restructured that at those contracts it, selling million. that call contributed and The revenue $XXX will

kind like exited activities not for of the several it's just the have C-XX that, or over So quantifying last that of sales quarters. forward-looking we a anything

Joseph DeNardi

it. Got

call? what too on defense the bit you for from side have side? Could defense visibility hard if you you characterize expect year, Okay. more little Do the business to commercial the is the

Sean Gillen

defense the Yeah. of of little specifics. go guidance, line want kind not We're of to but don't in obviously not sight, better -- terms into got giving a bit

be As and John of recompete ultimately, mentioned, or stay some may these contracts add.

So there's sales some uncertainty to that. of quantify there the on and for look forward kind going

Joseph DeNardi

you. Thank Okay.

John Holmes

Thank you.

Operator

question comes the Your Ken next from of Herbert. line

open. line Your Please go is ahead.

Kenneth Herbert

John afternoon. good Yeah. and Hey, Sean,

John Holmes

Ken. Hi,

Kenneth Herbert

Hey, John.

when are 'XX, your demand would aircraft fiscal into any then continues you increase, parts into look to USM as reason scenario finer on utilization guessing as you you represents fiscal could viewing business, on I'm put the see growth, aircraft 'XX? the utilization? how perhaps parts but head there to where the point is than And on you think see just side it, you to point As just we lower to a about utilization pull faster finer side relative

John Holmes

you're, is think demand, out -- pent-up mean, you have I I there. question we no there

will, outpace but And with steady of hit utilization thanks terms we once so, supply as down, recovery state in to catch of increased utilization up, I say, kind consumption. to that and see inventory then would elevated once expect we if would that you track utilization would, the our is early in part parts you burned

Kenneth Herbert

think it even do could or a longer? two catch-up that quarter or you And is be

John Holmes

the to I in to be difficult in you're definitely what go in few I We said sooner predict the you think and that -- of just US. the as to utilization the last if some I seen seeing right higher what It's in increase is earlier as will, activity. than we've because -- parts I'll say much going that would is US highs, weeks, international the now. back that

So to predict we want at wouldn't would elevation. this that precisely attempt but encouraged, point, when we're to see I

Kenneth Herbert

Yeah.

business, the see Okay. any you to industry is widebody previously yet started MRO And States And as and pull heavy we in back have look see China currently at start to work an do in is United or done Asia some about particular? market of if do the to you, of interesting trend, how that, some that you capture you that? we or to capture that that that would capacity maybe to to look add think or and

John Holmes

of but examples the can't specific my I a head, at So, absolutely there lot take discussion is the that. of anecdotally, about top yet,

with a But narrow-body and make other that of operation find we extent that as certainly of it, extent and for wants open. in to repatriate an work we the room in so, been primary be the focus. how much and kind terms US largely the that, And support depends had able North that and all labor America, our customers technical in couple occurs, think to to a Canada to of the we We existing balance can our it that and I we've versus service have demand. it customer would it. conversations be that's been as to historically, And would both

Kenneth Herbert

PMA at now? you something that pursuing do looking side opportunity, perhaps as a the about or how talked parts that, you're had still view you that pre-COVID, on growth opportunity And is Okay.

John Holmes

Yeah.

continue look be houses We that part of opportunities at as with other continue and our believe PMA should out we a well internal there. to to portfolio, as initiatives partnership

Kenneth Herbert

some the DLA. government that that their terms distribution you've on look purchasing? on from does on pressure yet pressure And side, military you a any or the just Okay. in I Great. know 'XX the hearing for of of about contracts government 'XX to DLA, finally, got parts. the Are of seeing fiscal from number we're side how or

John Holmes

administration a on platforms to the and the out DLA. focus on administration's We've to we the moderation as in on sustainment opposed are. prior the spending that and focus And Good weekly seen we going volume question, next-generation money new Yeah. attribute order definitely to readiness. the of is

So that actually lines same-store military we moderated at growth pressure, do though a come Having expect regard. that, a bit may of even on little said sales in we've product or got distribution that ultimately the time as new we agreements signed new have of in queue we growth would provide or sign still over that that we've believe number in market distributorships. up

Kenneth Herbert

a and job Okay. business the Great. downturn. Thanks nice the managing through lot really

John Holmes

Thank that. you, Ken. Really appreciate

Operator

from Your the of Sullivan. Josh next question comes line

open. Your is Please go line ahead.

Josh Sullivan

afternoon. good Hey,

John Holmes

Hey, are you? Josh. How

Josh Sullivan

Afghanistan of I'm a it Can opportunity some kind exposure? support just services, pull of outline doing more you point? or on well. this some headwind Is of your your an they as out it at is of

John Holmes

operation will but of a One different It's being we The one neutral Afghanistan. change, There restructuring. involved in program question. the kind to to positive will is based actually great is -- program restructured. AAR financial that have be a couple impact operations that on are

is will will country be We mean, it's to will And can. opportunity WASS ways unclear differently correct. significant supported The do support there and extent a be exactly impact the point your we I that, contract. the over that if on number other is any, on the we operation. -- withdrawal that but to that going at that the of point, operation there participating to have have this are in what, forward, we focused

Josh Sullivan

kind opportunity it just are is Afghanistan you? then, really or WASS I growing outside globally in on of of Afghanistan, there for opportunities mean And the contract,

John Holmes

So a to would on tend diplomacy administration. say, philosophically, rely WASS, democratic I more administration than a republican

Obama, to Trump. example, its for years So prior best WASS has under had

the WASS we so, our yet, could it's look believe on it's that to administration that occurred None level that. the that has certainly, around beneficiary the of activity increase be the a current something And but to that of of extent diplomatic mind. world

Josh Sullivan

on following your question, -- PMA up engineering investing the PMA as and then, you you will do it. do your see yourselves be of Got resources more And distributor own in you just making? a think pursuing PMA, of or the

John Holmes

Both.

Josh Sullivan

for you time. Thank right. it. the Got Both,

John Holmes

Thank Great. you.

Operator

[Operator Instructions] the line Robert Your Spingarn. comes question next from of

line Your open. Please go ahead. is

Robert Spingarn

with I'm questions. just more a Hi, back couple

John Holmes

Hey, great.

Robert Spingarn

profitable smaller about does Maybe more future? it like what is MRO, of in to this think third look thought In the pre-COVID, about we is way a but one Aviation Services. of

John Holmes

then, employees for I that can stay true not the Yeah. adjust to the that full-time so historically on to something reasons footprint, go better we the broken more we tend servicing of we to our pre-COVID, would demand production We us labor want to can that contractors at wouldn't labor think terms relying wouldn't -- saw to to our model are but into and -- of necessarily attract but is, to allow that we with this where I point. to that's would this as capacity get continue skilled to and opposed we that yield. expand again potentially the where out, higher of But that much employees extent full-time on back -- a the production with we and and fiscal it quantify in that, our And that's hour also competitive to today. on we but expect a want fewer yield year. hours those get but hours would point

about it. thinking So how we're that's

Robert Spingarn

way questions Okay. in then, these are similar to future. the And all -- a in these looking

Aviation before? When about how we do that it how additive a we announced with of joint words, the relative business, I new all terms about we guess, think different is? of relationships ventures You've COVID. other Services of in In to, during size customers and deals, that business how lot think do

Sean Gillen

build That's business to have our likely saw a comments done. those but of foundation we believe that pipeline. of half particular. difficult parts volume counting the well have goes say deals it's adoption I Fortress aftermarket back lot a exceed that would than grow to then we've as levels. increased businesses my the new the earlier -- those parts pre-COVID as a think back particular. foundation pace of business, and businesses At thanks opportunity around from new that again, the in for we've on that, out ultimately pre-COVID the and USM, just not distribution to that and to material this both point, that the of I We user on in lines businesses announced we -- just the size over we last as those and in we see and the year We those already the that to pre-COVID like have on did sketch broader programs to

Robert Spingarn

And we anything of trend the versus to about is we clearly in you're contrast airframe, deals engine the about parts? activity in doing MRO, engine as terms on from work. should but think other think about We engine take What's the airframe the there Fortress airframes? side or there your

John Holmes

Yeah.

that savings parts customers the engine engines, using businesses. new not business as overhauling as focus cost airframe been business, expect us from the parts but So in to opportunity continue that of engines airframe the primary shops focus The and buying has supplying to -- business. overhaul part maintenance there primary opposed they don't materials forget opportunity historically focus gear is always detailed, got tremendous of the want the And in been of is is there, again, as the most we as performed well, a OEMs. but the in the primary engine overhauls. for see MRO has MRO the supplying And by focus engine Fortress components landing the the there parts, you've cases and of the aftermarket amount most aftermarket engines, to for we to

Robert Spingarn

these there? forward Okay. in do some desire are the going past. And work? any distribution, opportunity balance the What structural post-COVID deals then seen to sheet your on that change just to distribution Does more expecting we've to in you put investment that to

John Holmes

see We opportunity organic market. a in lot Absolutely. that for investment of

other a right we was the There we since expected. Unison investment. That's where that other and are That year announced ago, announced You meaningful tracking deal. the are in a programs that recall things then pipeline. we've

at very this we've focus. the and we of require our point of space not. capital; couple But excited we competitors, can position unlike in core Some it's got a balance our work that to a of about some put do them the them sheet larger distribution we are occupy because

Robert Spingarn

on expect last fiscal also maybe, in Right. invest do or is, 'XX? to Sean, do And in and much my you expect how what digitization one this investment you have you

Sean Gillen

Yeah.

will modest there be some think investment. I

there. will past bit total some a digital of capex. which capex, an year a you historical SG&A, be increase this than last of of will in lean mentioned, will come a terms of to I that see bit little year, through in years of line with that in year capex, investment be for And higher Some capex, was more obviously in capital, see as terms before then so the that

Robert Spingarn

you Okay. both. Thank

John Holmes

Thanks, Rob.

Operator

the Ken from comes of next Your Herbert. question line

go is Your open. line Please ahead.

Kenneth Herbert

Sean, follow to up just that. Yeah, on hi. Thanks. I wanted

cash sort the flow cash You as Can comfortable, basis? a 'XX. about if be generated about in to of around through start conversion a we It of or how think you're on And fiscal cash you think couple heads think like in of the moving normal free up 'XX? strong 'XX. where sort more really business should capex maybe should walk you sounds in framework key we pieces

Sean Gillen

Yeah.

of I of and efficiency our cash the shows up think we've working flow lot capital terms company, improvements made in a cost which the management. of in

and up position conversion As compare you and put specific think fiscal in 'XX to managed on our largely 'XX, new and in focused there. will will the cash to was there you we're but obviously provider think to about which target. capital out to I performance the as FY a 'XX used to and in inventory on same because, mentioned, well inventory going both FY -- work, opportunities as we what have as John year it sketched be show material, that FY in will a material don't of try significant see as occurred

bit on eye flow, continue little working on to new a money more of managing We with free and focus will driving putting to investments. toward capital but an work cash

Kenneth Herbert

That's Thank you. Okay. helpful.

John Holmes

Ken. Thanks,

Operator

further Presenters, questions. [Operator are no Instructions] There please ahead. go

John Holmes

first Great. Well, Thank talk we back to and thank interest, look and to you. appreciate the very We results. forward about you quarter really the being our here much. time

Operator

you conference all for This concludes call. today's Thank joining.

disconnect. all may You

AAR (AIR) 21 Jul 212021 Q4 Earnings call transcript