AIR - Earnings call transcript Q2 2022

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Dylan Wolin

Good afternoon, ladies and gentlemen, and welcome to AAR's Fiscal 2022 Second 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. 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 quarter section the year uncertainties and earnings XX-K ended and Form fiscal Risk and the of ended August risks XX, discussed the company's in release for XX-Q XXXX. These for XXXX, fiscal XX, the company's obligation or providing unanticipated anticipated In no events. forward-looking to updates the statements, provide the or reflect assumes company to future circumstances on the non-GAAP call Certain be financial will discussed information today. is the reconciliation in set of measures these comparable A forth to company's most release. measures earnings the GAAP non-GAAP this to At CEO, turn call over time, Holmes. and President the I would like to John AAR's

John Holmes

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

comment on the Before the discussing overall to results, I like environment. would

the we're of resulting impacting know, which is that seeing government traffic. commercial passenger you variant, now in Omicron restrictions are spread As

commercial overall own be dynamic quarters Omicron have and the are Delta the recovering, delivered. have is now focused environment, full While that flows will and the of margin to proud strong that, and of traffic variant our expansion Despite on this passenger path remained straight we line. recovery highlight the variant execution we market multiple that cash a not

quarter. to most Turning this recent

MRO per from to and million per $X.XX Demand million, increased $X.XX sales earnings increased Our per X% year-over-year has adjusted share our our operations for from $XXX services strong. XX% diluted to $XXX share continuing share. remained from

remained Even running supply on maintenance to bookings keeping chain our the and schedules, as customers focused they have deal MRO changes with smoothly. the

together. supply, margin look to early variant. in in recent the which supportive is saw the stable of negotiations from before we address labor throughout activity, levels also quarter volumes had we onset in highest have the albeit the as customers been QX Our Delta our the the tightness Parts down market price

some to from of that freight did have chain well as extended our own QX. from as supply some to operations we repair well, delays, supports seen move AAR sales turnaround QX is the functioning times subcontractors our overall, which While at cause

years this quarter a same earnings, pandemic, validate in from Regarding for more X.X% down adjusted exit we revenue X drive taken quarter's to despite is illustrate X.X% adjusted the year, first though profitable expansion more the over pre-COVID past that to operations, the importantly, activities. our though million our still the in quarter we this years line even performance to is margin Even period. adjusted in margin even To X sales. exceeded up operating our of was decline delivered This continues from as underperforming margin X.X% that over quarter. offerings and this margin efficiency have down ago X.X% significantly. our another to our margin this, quarter Sequentially, levels compared top actions increased to was prior prioritize $XXX the our

expansion continued expect We our margin parts demand recovers. fully commercial as

from continuing We had activities operations. quarter another we to operating million cash. $XX generated Turning from as strong

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

operations AR the our from of continuing million. cash impact $XX Excluding program, flow activities the from was operating

Over flow operating from the have generated last X a from continuing $XXX operations. total quarters, million of activities of we cash

Regarding new business.

provide quarter, renewal power-by-the-hour a the flydubai a XXXNGs. XX X-year of fleet During announced to support we of component for

their our behalf alternative we and customers fact offset which from carbon customers. purchase commitment that to our is carbon reduce of to CFMXX parts. purchasing our partnership helping This USM of reflect USM initiative green of a footprint the sustainability a initiative our announced Fortress on both and low-cost new all will percentage contribute also sales a Transportation We Infrastructure, under credits to

for new to provide the the XX-year F-XX million U.S. repairs primarily $XXX a to contract decades, been for in Air maintenance announced with but we the based end supporting of subsequent aircraft Europe. Force We've takes performance Finally, similar and the program is that F-XX a to quarter, depot-level this duration pursue other allows and nature. of prior us complexity meaningful contract past that step programs and of a level. F-XX The support a build support to will this above our

Before turning comment the program it like on this we share Sean, over to would repurchase to I that earlier announced also afternoon.

As and our our business; via are: investment the third, capital of for of before, with addition to organic we've said the synergistic acquisitions; allocation shareholders. priorities second, our capabilities first, return in capital

driving generation With it to for Our to all balance CFO, over strength of sheet like the of discuss more our allow shareholder is our the quarter X, pursue part in and flow I'd this value. repurchase to detail. that, Sean our program consistent us and turn long-term plan Gillen, cash share to

Sean Gillen

John. Thanks,

quarter Our our $X.X Sales Services the driven markets, in in $XX $XXX.X were year-over-year. million Services sales million. our or million down Aviation up in segment our of up X.X% were Expeditionary sales recovery commercial were by segment in and X.X%

markets of were modification the were sales sales XX%. prior of our of parts versus X.X% XX% profit year the sales ago in in margin and X benefit by year driven the in government towards government certain $XX.X was expenses level XX.X% million in sales X.X% and margin XX.X% activities, by the the portfolio refinement expansion improvement efficiency were our businesses Corp taken gross government and The in was SG&A wind-down margin commercial the the by the programs margin sales driven contracts in U.S. have the sale driven to actions adjusted commercial reduction Gross our down Marine that declined we year Gross on but the end and and Afghanistan. aircraft quarter of and quarter in for in profit government also quarter. reflects our variant heavily while both and was our and the businesses. the program of were primarily XX.X%, decline activity quarter, profit supply C-XX government impact due the quarter prior XX%, the up XX.X%. weighted in activity the and or commercial XX.X% adjustments margin versus was quarter. to Our out certain the in government primarily declined Delta our of gross significant Sequentially, businesses commercial profit our sales. This closing The was more was in of to XX.X% on applied commercial our commercial.

despite Excluding XX.X% million and closer adjustments in still QX with of investigation FY to decline below in SG&A have amount is would the line $X.X of approximately severance of from and 'XX. costs, been million related $XX remediation QX pre-COVID to sales. the this sales,

proportion we expect do forward, to grow not Going SG&A revenue. in to

as expense environment recovers continue drive expect SG&A XX% we we commercial be or demand and government additional to to to was win result, lower. million year million sales As million interest the a was Net business, year for to million able for borrowings. prior versus $X.X last the count by compared $X.X the lower XX.X driven Average XX diluted to quarter. quarter the quarter for share of

continuing $XX.X reduced quarter. As accounts John and indicated, we program our receivable generated $XX also activities by million financing cash operations flow operating of the from million from our in

using Canadian revolving During facility, term the quarter, capital simplifies repaid credit debt further we which loan our of $XX.X structure. our our million

of leverage with balance remains of and Our $XX.X net strong debt X.Xx. net exceptionally million sheet

windows, $XXX years. call this acquire the authorized afternoon, deploy now you management's a X and Regarding and intend authorization amount indicated John. next attention, over to over million release program, the your open fully share turn our we at discretion earlier the repurchase approximately I it's shares trading the to as will to Thank in during back for

John Holmes

Great. Thank you, Sean.

quarter Turning to ahead. the

plans. not variant now, our the of maintenance Omicron impacted has customers' As

the to although which diminish scope we expect our interest MRO we the That could expect the long-term reinstatement activities demand, extend Parts activity, the to variant the supply, As line as we such, the at predict, as full grow restock new is near to to Further, we are current eventually distribution international in to agreements. restrictions, the further time to levels, our given inventory. of for travel to parts USM more difficult impacted likely is continue will beyond we we move new each which expect incremental timing most of impact full expect global of as be secure business the and recovery. move said, is just capacity. forward. exclusive recovery, remain operators return their which by And

side, expect about to loading we demonstrates with our resonating program government Notwithstanding are hangars best full, expand F-XX and our in continue feel supply, able is uncertainty, good the the the parts pipeline. the practices, to and commercial pipeline be and government to the On customer, our backlog programs government we and our portfolio. government our our

As sales levels QX QX. in growth expect saw such, to sequential approaching in the we we see with

our entering We in eighth are a quarter COVID now world.

our and been able that through pleased flow balance margin consistent very over are improvement our ability our the with We time, to to that cash generation. we've sheet particularly deliver strengthen performance

repurchase continued share and program million I'll and our our expect confidence, us years. to the coming execution $XXX from quarters the over of turn over reflects operator and that, And progress with questions. it for launch you Our can

Operator

of Instructions] [Operator Herbert first Ken from the RBC. line as of Your question

Ken Herbert

or the the driver to can out down from maybe supply big you the sounds side relative maybe that a of and off, in business, I like -- business? sequentially was parts parse from not in maybe quarter just start commercial of trading to parts wanted MRO you growth. growth distribution XX% the the Can that it your the that growth commentary parts

John Holmes

quarter, And from of actually but as that prior saw, mentioned, so and businesses. relatively we and in Delta was saw uptick stable at activity little was It we both Yes. was from -- We parts relatively stable, beginning took in throughout quarter across which the And bit. this trading. at evenly. in slightly end and distribution it QX, growth the QX spread actually a the of was comes then But a after most real up down parts MRO of hold, the come fairly general. the

Ken Herbert

But pushing getting obviously, terms seem more inflection things specifically, trading? And you're to in tracking what's confidence some expect when give to that new indicators to when either see we to you the Okay. inflection guess to might are I of or, more the variants visibility distribution give as we recovery. what right on meaningful are parts thinking be in a you or And we that and the going now keep your occur? better of that these

John Holmes

great a large I Well, you've gone think a it's -- question. through

large we're parts in in are And through, recover here markets. waiting gone has recovered. destocking international for around And business. The areas our world. to you've is the North demand particularly America, the part, the narrow-body parts international think aircraft, see most again, I that

that, largely So being And destocking difficult because flying. these the there's be preference unfortunately, in will complete that you've quite demand consistent travel you've consistent timing consistent open fully a run to restrictions to would have lifted, that's USM on demand as very obviously continued, on and expect and confidence consistent parts that get more when more the of material -- to the borders and we business. in towards USM predict. we you seen a airlines more once see clarity the have we more being But in material, to related reopen, believe seen empty are once shelves because markets is going

when difficult going when will that's but to to pretty it it does, a it's be predict So expect uptick. occur, we meaningful do

Ken Herbert

And final on question just one that.

much few aftermarket think sort assume next you or could not maybe demand broader USM of cycle, much how model the you couple do parts just how of you demand? quarters, As years, but next the outpace the about do

John Holmes

both that. on in markets from in want USM. legacy increase in say wouldn't interest specifics Asia I as significant into a But a as just seen, well market as would we international North standpoint, here carriers get America, such have I to

pace that again, And difficult of and know that so we but it's to the it's growth, there. path predict

Operator

Instructions]. [Operator

of Your comes the Truist Michael from next from Securities. question line Ciarmoli

Michael Ciarmoli

a just that on response guess Delta we and here else about the what now the basis growth we're with we the with mild sequentially mean -- and back and might here back, I you quarter. response what seeing we'll going to said you John, a mean, line first seemed versus you more variant, I in what everything guys do just see we restrictions bit as maybe on. look How how travel specifically Omicron? I Omicron in fiscal Delta think with to on maybe with saw -- do see some go-forward

John Holmes

some based -- in sequential QX The and growth did question. as now largely Great Yes. have I from will on we about are mentioned, sales slip occur QX. comments

we more at as we're seeing respond hopeful looking company, the you're see then and if you But rapid gives just that our -- related publicly as But the you of variant here be to relax right prior. and broad the these waves, to these which able was Obviously, are current so the quickly. confidence no you as each society But And and of comment question, to these of what across to growth. shorter the that governments and sequential now we're generation quickly Delta will, hopefully one duration that. airlines saw to than specifically with seeing in that new Delta. Omicron. more first shorter next we're each the response more was other said of cycles, restrictions we going quarter-over-quarter tied something are to what more I see definitely than will the backlog backlog. we're growth There's tend have the said agree example will us -- with be impact industry Omicron with what mean, it, is

Michael Ciarmoli

was of slipped And revenue that quarter? the of it. out what amount current Got the

John Holmes

the go would quarter And to somewhere on QX it between said between the -- we end QX. If we guidance and we that would of that provided, you that. be obviously, lower back be this we're

products that guidance. of those in shipped would the planned, have as we been middle As right

Michael Ciarmoli

Got it. just Got it. one more Okay. And maybe. then

mentioned the for see going overall the maybe all back, to to improvement? Is utilization need of a parts about of not that do think driver recovering your wide-body be terms parts distribution big business we some mean your business. difference I in business, exposure? come of but we a there as way some international of Is there narrow-body, kind You you? travel see meaningful widebody that

John Holmes

Some, commercial, it distribution And exposure we the of in -- the and more travel What most Most business some the I world in of narrow-body of but will is is should more wide-body more in both would around parts the -- parts say the trading of distribution full business interested seeing There's the business impact. in the exposure have of fuel the business. an be that wide-body we our less trading the business do business. as exposure that as some. well wide-body cargo-related. that's trading sustained we're recovery the in than parts

Operator

question the Ken Your from comes of RBC. Herbert next from line

Ken Herbert

F-XX And you incremental announced, of to ramp? on much just follow the contract up and John, fiscal quickly the contribution? 'XX the sort how how does what's that

John Holmes

contributor. we is yet, is contract things go, processed Yes, That were that. 'XX. through actually it's visibility that The great to question. process. hasn't full we time happened I revenue fairly clear, for at and FY contract we as the the would don't relatively ramp-up an once view meaningful expect until if any short But contribution have that compressed that expect 'XX wouldn't point, potential these to was we a there FY would the ramp. as but But go this

Ken Herbert

a M&A maybe the and limited as while, increase authorization Or I much buyback Okay. Helpful. expect organic authorization, of mean, and opportunities we quite as you there buyback on uses organically much other we And the for terms opportunities but in be identify you really for the expect? appreciate maybe part how capital. on well. now How about? quickly nice and maybe on M&A the starting investment growth some still to are do of can hasn't there usage of to investments ramp should thinking should mix a priorities higher of been I

John Holmes

and investments; right given all net we -- return allocation in execute is to inorganic set we the that position we And the on company first, question. believe the shareholders. opportunity a third, now Great mentioned, capital Yes. priorities second, leverage X. that in as capital are: to we're where organic we the to investment; see, And

of remain been organic business does the it's side, to a investment does a tricky M&A of of is now. it trading number a commercial are -- -- our looking or in the that a pursue distribution And on is it's that the does whether it opportunities, deals. ours. business, at growth so focus remain part right And we're strategy. a remain there M&A something environment growth part our of But

fully reasonable As conditions or the fully this this on we And to place at of timing -- as done we I a the can that market depending going it's the in Sean quarters, fits point, this it pace, mentioned, other this, unfold few as at employment But that in period next opportunities see, opportunities well chose as quarter. deployment. commence authorization. to of will amount relates utilize to ultimate intend of we're we determine that think how because it to we the authorize time. we mean, something the -- And and get that relative then

Ken Herbert

And clarification. to seen wanted correctly. you if indicated great. any final Omicron, result want one just got or I you could, confirm, of I That's backlogs. MRO that, just I that Okay. change sure your to make to as schedules just a I haven't

John Holmes

That is correct. That is correct.

Operator

have Ciarmoli Michael we Securities. again, a And line of question from of the Truist

Michael Ciarmoli

about in busy the to market, I pretty you're John, just you then busy as prep mean Do we're to labor get to comfortable to kind repair here would you we a even I 'XX mean of how that probably season. through an maybe globally are quarters? hopefully feeling? flying holidays that guys think get into summer going into going probably it feel as looking with quickly and you like back tight airlines seems season. labor to more optimist move close labor aggressively normal a I'm these be potentially

John Holmes

the that But your lot is it's initiatives attention the we're great awful labor -- that tight. of mechanic to. the is, throughout Again, and it a paying that tight for or labor, we really not Yes. than it's lower dynamic was just pre-COVID. -- but And of up the to typically we're tighter short say down something because the hourly question question. and it And an organization. would definitely this really And characterize answer pressure at not I seeing would as is I

base of initiatives because is And have we're pursued the of pretty that The the in so it's But we closely tightness. that only consistent. good the position. broader in say with through a to the hangars have bit relatively hangars of pre-COVID in keep COVID, would we loading and very and us the I a terms thing announced customers worked think

moves major during periods, in to together. in So worked what those load through force, with the allowed labor significant during experience resulted overall us to down up used and with which dips the season, force has the summer level and to we customers the the holiday have labor keep dips which us

And so but it's have here feel to we good a and our that meet for us. schedule long daily your -- but sitting question, ability answer the schedule and to a focus we it's about today, the

Operator

questions There no the John. to at like turn further over call to now I are would this back time.

John Holmes

Great. a season. thank the really much, appreciate you interest, and Well, and you. everyone we safe very time everybody. the happy wish and We holiday Thank

Operator

This concludes conference call. today's

disconnect. may Thank you. You now

AAR (AIR) 22 Dec 212022 Q2 Earnings call transcript