AIR - Earnings call transcript Q1 2022

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Operator

Good afternoon, ladies and gentlemen, welcome to AAR's Fiscal 2022 First Quarter Earnings Call. We're 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. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. May are Factors the Form company section the unanticipated year uncertainties and earnings XX-K assumes and providing events. circumstances fiscal Risk and or provide the of ended reflect no risks obligation discussed statements, updates company's in release for the to These forward-looking XXXX to the future XX, the or company's anticipated today. financial will be call information the non-GAAP Certain on discussed forth in reconciliation these set GAAP measures measures the to comparable company's of most the A non-GAAP release. earnings is I this call At John to over to would time, like Holmes. turn AAR's CEO, the President and

John Holmes

Great, thank discuss appreciate our and results. afternoon, to you fiscal quarter everyone. year XXXX you I very much first today joining us good

impact year from Our to were million pandemic. continued from positive quarter to sales $XXX earnings period, of per momentum share continuing $X.XX per another the continuing the of Compared with prior the up adjusted share. diluted $XXX solid $X.XX million to operations XX% were and per from share XXX% COVID-XX despite up results,

customers to XX%. decreased to sales and government sales and our increased customers Our defense XX% commercial

maintenance quarter encouraging was is work standard majority catch-up which services. We demand an volume the are a first in our significant of that has activities was business. that was in MRO indicator to by particularly also typically improvement from quarter our driven quarter to fact fourth from opposed due been Sequential of our declines our our returning in strong result was X%, of the sequential the the our commercial QX, as growth QX businesses, work. Notably, pleased parts airframe seasonality The as growth notwithstanding our our XX%. This for demand. performance on MRO robust

year for Our the an last basis was the operating X.X% up X.X% in fourth from X.X% quarter and quarter. adjusted margin on

XX%. This down was underperforming than indirect optimizing months or have performance by years over operations, we XX For this operating leverage and our to revenue though our was margin activities ago context, costs. the pandemic $XX MRO even that X reducing prior overhead higher our created actually last and million quarter the the demonstrates exiting

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

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

AR Excluding from cash the operation impact wins. of end continuing the Subsequent our quarter, activities $XX from new we to several flow that million. announced program, of operating was the business

distribute This First, OEMs as offering distribution aviation to an the to independent balance agreement the well engine sheet. with our of commercial TransDigm of announced we as component and award Arkwin, strength product. exclusive other a company reflects actuation power our

aircraft delivery the the CXX modified by significant Second, cost to savings quickly contract customers we prior Energy a cargo aftermarket. the in to announced modes. transition the a this and to demonstrates U.S. aircraft Like contract available procuring conversion for our allow and Corps, Marine the of of passenger with DoE government Department between with contract XXX-XXX delivery the

and growing operating with our carrier drive, extension an operating cost the market's offering demand for which component of performance. program continued reflects announced ability low a costs we Volotea, with Finally, Spanish superior this support our to lower

XXX Before International evacuation to U.S. to We their the withdrawal X,XXX hour of the from Over Kabul over team in would period, country Airport on critical over that support support to from had our XX role a I approximately turning like WASS to U.S. embassy program. country. the personnel in it primarily WASS comment AAR our transported a Afghanistan. station Sean, people in

it With under the to our I'll more in discuss very country difficult that, subsequently well employees Gillen our department turn of over proud exceptionally I'm departed safely support and of state detail. All as of CFO, team quarter circumstances. to the our Sean personnel

Sean Gillen

John. Thanks,

contract million strong year-over-year. our and performance margin our XX.X% in the take The profit adjusted were initiatives Composites prior the was we commercial our $XX.X improvement quarter U.S. the Services gross of $XX.X efficiency pallet of up Aviation quarter driven and prior quarter. in in in XX% recovery implemented. segment down year were and Services Air Our in XX.X% sales Sales cost reflecting prior million our Expeditionary Sales quarter. XX.X% the in have versus profit quarter million, versus out in business of XX% in or markets. divestiture Force XX.X% Gross was year $XXX.X year segment significant up margin by the the reflects were the the

margins, and expect the cost parts business. gross given the generate the nature continue higher degree the market the to to would as of to recovery maintenance market not As of yet business, nature of is participated margin which recovers, fixed higher our some our in commercial we sales same of our

XX.X% an during the XX.X% $X we sales or severance programs million million, We of this ago $XX.X our This quarter. from of asset were primarily this to expenses SG&A about during the million year As recognized charges indicated was the last is terminated and one of quarter and call, related closer to of QX. been in in quarter's impairment. in have commercial contracts down would of termination quarter sales. excluding XX.X% XX.X% $XX

and quarter our was Department the diluted million to and respect versus X activity share million we discussed place With savings quarter prior in Airforce for consistent a for our had WASS that on overall we The Net in are year. reductions program as being our had program, is and operating completed margin. total, past aircraft. QX sales to these supporting margins later that FY'XX support conjunction compared this as UAE. Afghanistan we with on four As were In exit were activities the programs, State million department's the the the million, $XX.X last year, which lower to to WASS the in last Afghanistan, continuing quarter's year's salary from In million Afghan due call, the in last with the have program cost based $X.X quarter. of aircraft reminder, CXXX through expect $XX borrowings. single-digit with Afghanistan, winding driven for the activities results by $XX supporting count program $X.X state expense quarter. of down X in-country last CXXX related currently X was described we high interest year of contemporary were on benefit the be Average

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

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

now back net over remains you I Thank X.X only to the strong Our with debt leverage exceptionally for sheet turn of call of John. million attention times. and and will $XX.X balance net your

John Holmes

Sean. you, thank Great,

near recovery the chain. air we activity demand Looking stable the With healthy airlines travel part a we respect focus activities result MRO on created performance we as supply to preserving of as supply, during forward, in to quarter, for and increasing in continue uncertainty variant. expect the to levels readiness that Delta expect our a the strong will on maintenance while of support the both term saw by remain

a on On Afghanistan points the from will government have business. impact programs natural side, the the as our nearing as exit completion near-term well

our of commercial Department demonstrates fundamental proposition that model. best is business the Energy our award However, of an offsetting value contract practices

history. solid past In a performance to build addition, we continue

near remain we through current expansions additional positions. to expect believe dynamics, these of to that position program As performance business overall excellent we our an government over QX. such, wins on Based term to QX be time, our and we similar currently in grow

the While there uncertainty recovery. over remains the timing of

are are well believe, we a recovery we will confident positioned. exceptionally We that occur and

operating an to leverage crisis positions even pipelines the We have to for government that, further stronger with to margin have from over we expansion. With questions. emerged operator created commercial and sheet, and our it the full us turn the continue balance I'll drive are

Operator

Speakers, is Ciarmoli Michael from of Instructions] Securities. question [Operator first Truist of line the

is line open. Your now

Michael Ciarmoli

just made XQ more Good referencing? Maybe, the results for bottom questions the comments just talking that evening, side, line Are top well. XQ. guys. the revenue looking Thanks you you here is as and just nice last to and there, similar you or both taking were John,

John Holmes

that I an we up this we say would think uncertain point, thinking we But in remain environment. highlight again, down. similar, and top mean but and when down, we're at I

Michael Ciarmoli

to think, was and international are at maybe strong, from open that we I'll and guess I just of commercial maybe that, customers is I growth Air do grow specifically? looking and I specifically of that other and trying sense, a headwind And this these - with coming online additional maybe, stemming you in Canada mean mean, from of really just sequential I'm line as WASS But to implied all Okay. continue had your the strong. contract you in. up, kind top the get the feather really does thinking, markets some I Aviation mean some look Services

John Holmes

Yes.

was majority considerably that off we in And bookings are to the moderate business, from a more had weeks. quarter, We the demand. improvement. the that the the in really that commercial stability seen What driven the largely pullback and trading of by have the our is business far have The levels, of quarter that was you've few we had seeing activity did throughout levels it across while seen still the increasing board. is kind commercial of we recovery sequential we it So a they the pace customers. nice last great but in of pre-pandemic which attribute

there Canada notably quarter. has forward. happy opened are Canada Air expect are considerable right activity this Canada was seeing contribute results to Your customers But do up to that and that comments on we not really our to contributor on. a it more that going that We're

Michael Ciarmoli

sequentially or went you just gross strong little actually general year-over-year and growth, can said, more add margin, I parts adjusted it any the just gross MRO the Was a into bit on anything, little strengthening it a and gross you declining there? the Just What recovering good down obviously bit. mix margin a given on was but margin top you had more the line. else sequentially, color know bit dipped

Sean Gillen

the Sean. Yes, side, touch hey, on sequentially. government was was It a little down that mix it's a

a call, As our drove few we profitability was in that on QX outsized events some activity. QX talked on there government

a what parts that is which that sequential saw a little accretive about to very So from continues the overall the XX.X% to And the good to will grow of about we feel XX.X% you drove bit talked but decrease be margin. as as on still profitability. decrease

Michael Ciarmoli

sure, there? not stab with you anything, much is could I'm of color, I expectations on if Just and a but parts thoughts the you Fortress mean, sort take on I'll or how any give and provide trending will guys here. relationship the

John Holmes

Yes, we, exactly program the That is expected. very relationship how well. we going is performing

the everything And full those rest rate run of a and in I that they throughout said program is going would expect we full partner this basically quarter a doing year. the point at were at to they the contributor, great is to that Fortress do. be say levels consistent and

Operator

question Next Ken is the from of Herbert RBC. of line

is Your now open. line

Ken Herbert

I your seeing wanted ask see marketplace? you a if see subsequently to might of And see in in has retirements. we sort what currently or and uptick view availability to changed start more a first, retirements meaningful when could I you that USM about are or on

John Holmes

assets seen soon much recently. seen reasons, us that more the we last, a are things that in last we stock. more that due And past We us. for to some. more again, become anecdotal have come out in quarter interesting too available I sort material into there characterize uptick The too don't we was weeks. call not this to of to trend are to anecdotally, a too would come want that saw meaningful any have I have competitive available few the detail, few but largely And seen in it But in and activity retirement/teardowns. suggest would as get to

Ken Herbert

about labor that volume in some And nice MRO sounds talk reflected Okay, business? as in that pricing your or business. like are starting seeing Is better to that's helpful. all it's you you some It uptick. see rates

John Holmes

contract to The pricing few consistent more the customer few actually long-term over years is seen base over the very been quarters. customer. based focused we've a to last down last worked hard our We've that get

we're that under operating all in contracts long-term business. of almost So

by What stable. footprint to opposed that changes made the do able we a was really availability time our our aligning we been see space based the our been on and we've able the as inside the full pricing labor, to by the hangar improve efficiency design So, the pandemic availability performance inside have relatively labor hangars. superior that's been optimizing and has where this hangars with is during and to achieve labor in contract most we

Ken Herbert

you comment forward? had see you great. should and incremental just around. know, business, any exited that's just on think Okay that contract And Can quarter. of that of a bouncing about I in risk your the a moving of you how what's sort risk programs you program, we and left

John Holmes

remaining quarter We we end portfolio. Good about the right year was when something the feel that good after and announced Xth of the question. that results. that That we the of end happened characterize

terms And so the of we that wasn't situational. program new a very there long-term and about excited with Volotea. They've that contract grown is kind story happening as few we've would a we for grown success remaining I they've but And customer say, been that and anything and anything that contract in be has portfolio in good extended and this that the quarter, of done another to excited a of we're of years. work feel was on great volume airline, with one-off them that

Operator

over to management for you, back Thank remarks. now the [Operator I'll Instructions] final turn the call participants.

John Holmes

everyone's support our look here days to really and I XX forward interest back to we quarter. Thank back forward talk about appreciate and being look in Listen, you. and second

Operator

conference. that joining. you And all concludes today's Thank for

now may You disconnect.

AAR (AIR) 24 Sep 212022 Q1 Earnings call transcript