AIR - Earnings call transcript Q4 2022

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Operator

Good Day, and thank you for standing by. Welcome to the AAR Corp. Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. to conference like to now would hand over the AAR. I ahead. go Please

Unidentified Company Representative

today President you. gentlemen, Sean Quarter 'XX joined and morning, Gillen, Earnings John welcome We're Thank ladies Fiscal Chief and Financial Good Officer; Chief and Executive to Officer. AAR's Call. by and Holmes, Fourth

these statements that XXXX. the Securities the include the non-GAAP the risks assumes we as comparable materially are forward-looking XX, These in involve call Before over measures XX-Q events. measures differ and John you of February reconciliation defined fiscal ended President most CEO, year I from These time, Certain XX-K or Form ended and forth discussed unanticipated Litigation to release obligation non-GAAP call to the during uncertainties release. section circumstances no statements, forward-looking Risk XXXX, forward-looking reflect or Holmes. provide updates the is could made in May anticipated and to guarantee information to set At results performance. earnings on be turn for the A like GAAP would comments company's in begin, Private this Reform statements Form today. statements. XX, like discussed future these quarter for of will Act Accordingly, I'd the of future to providing the to financial In forward-looking the XXXX. the AAR's company remind company's the company's earnings that actual uncertainties and statements fiscal to of the are the call no and risks may Factors cause the

John Holmes

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

take I leisure demand the on would those that year. last a be nearly the results, and we with same last fiscal comment to thereafter, rebound in and year travel. year travel Shortly moment increasing for Delta saw We like domestic leading did entered would the the rate. international reflect a and to optimism on I business Before at indicator summer early markets emerged not for variants the the Omicron

the addition, headwinds natural of as which our other had government of conclusion programs, of certain as Afghanistan government the withdrawal well our In during in source strength important been from pandemic. the U.S. created business, of an

be economic environment, labor supply, macro the I'm this inflation and been high, backdrop, would way of pandemic we for delivered light in the in deliver AAR short year. I that proud able not running for a incredibly Finally, It recognizing credit to to team our a to them about to was thank we want inevitable navigate that both. has results the that's in And growth. and and has customers our there this is that the the been In uncertainty of value that way we have. finding

government able were sales cost importantly, more efficiency to improvements to offset continue XX% customers. drive commercial customers to and in significant decline to share. XX% We Turning increased full from to Sales billion to $X.XX $X.XX diluted XX% were to $X.X from to share able the from per XX% per Even the deliver than sales in we results the growth. per a earnings a earnings to $X.XX billion adjusted increase continuing year. increased and share operations with more for discipline

$X.XX per to from million per $XXX share. the earnings adjusted sales share up to $X.XX XX% up diluted operations from continuing were $XXX For from per million and quarter, X% share were

EPS X% of and increased our growth customers our commercial sales growth XX%. to customers defense and to sales our XX% total sales and government decreased Sequentially, adjusted Our XX%. was

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

quarter full, further nearly in our performance operations to parts hangers remains supply in during for our initiatives material remain to benefit in we that pandemic. and we see saw short recovery remains continue We trading company across the used the strong we the implemented operations our the continue activities, to certain the efficiency from MRO demand but inconsistent and platforms. our of support In availability serviceable as

Turning government our business. to

quarter. to While we revenue, to it is in margins decrease saw a decline, during that able expand we important despite this note were the

our pandemic, Just done margin in against that to delivered and and taking deliver goal operating a EPS highlight a levels, step down back, the to that from adjusted proud of This pre-COVID was their XX% I'm commitment. we quarter, we've early work pre-COVID in I despite we the would sales this being exceeded high. like established that

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

$XX repurchased also X.Xx program. under our the exceptionally continue our Even net we share repurchase to growth. in to million the after share to fund quarter leverage of EBITDA, our positioned we be We repurchase, reduced stock and well debt

new to Turning business.

partnership a is capability solution Technologies this which allows us digital to to our trade This and marketing announced emerging has uses a algorithms developed a the generate proprietary and that we solution in partnership to dynamically as are using for operations analyze we ProvenAir well. own parts. During customers aircraft bring with that back-to-birth this digital quarter, history our

burn to XXXNG. that drag which the announced larger This aircraft expected company by to Aero we reduction the addition, with fuel the has the XXX-XXX. X.X% over system relationship Labs, is kit for developed are and of equates our has benefits kit for the per XXX-XXX even COX per reduce potential be a month aerodynamic XX and In XXX-XXX, to of an reduction tons Design which

services distribution to providing company its fund be and the will help in basis invested growth. to have exclusive also an on the company We

announced to be With give relationship us distinction Logistics that, we U.S. and long-term week, awarded strategic I'll the non-OEM that supply the contract of of result a allies. became with Gillen, a by we the to turn access more its to chain support Defense our Finally, Captains to Industry earlier and to in establishes will over provide to Agency. the that first the Department -- this is opportunities call results with Defense us CFO, Sean This detail. unique the U.S.

Sean Gillen

John. Thanks,

the quarter of in Our Services contract modifications, remediation resulted includes business as digital recovery on quarter, certain were driven as in prior XX.X% profit strong profit by Expeditionary up in the indirect were sales up driven in in year X%, were our X.X%. million well gross year $XX.X X.X% or costs. profit the project by initiatives up million. expenses commercial matters year-over-year. Sales commercial in in recovery segment programs. XX% and sales XX.X% in by our in business, as segment were sales the year-over-year, commercial as quarter. was million This and XX.X% in other while adjusted driven in sales XX.X% quarter margin were and our were decreased completion margin increased to government which Services our profit increased our higher well gross our margin Aviation figure costs. and our XX%, performance of SG&A Sequentially, and was of continued commercial versus our versus our the quarter investments in margin our $X.X down our in prior the margin $XXX.X Overall, XX%, and investigation was wind activity government business was sales XX.X%. government the government Gross Afghanistan sales government X%. down and natural up strategic related was XX.X% $XX.X the million The Gross

million Net a our invest SG&A we quarter SG&A expense driven As remain continuing highest our of fourth million seasonally quarter, for lower committed interest has year, in driving despite reminder, a as increase rates. quarter by our to $X.X historically percentage borrowings in the been interest cost. last to was $X.X the and to while down compared sales

our from operations million. As $XX.X indicated, of John operating generated flow we cash continuing activities from

we of receivable share by our reduced $XX.X $X funded addition, million. million In and repurchase program financing accounts

of deploy back Our of and your balance of John. over to you strong on X X.Xx. to X years with will our exceptionally time million over announcement. to last expect to remains I the now the leverage quarters, debt And net plan we repurchase only Consistent turn $XX.X authorization continue from execute with approximately sheet million the full call the Thank $XXX for attention. share net

John Holmes

Sean. you, Thank Great.

very domestic paying recovery to be to and traffic while demand attention its travel air global forward, Looking commercial be total and potential travel. slower, are environment to macroeconomic for we for and continues the continues in market European impact strong, the on

pipeline. new platforms remains have should certain in demand parts our used we we convert recently availability the supply, the continue quarter to in to opportunities up as while recent largely for and remain remain the to a government expect has commercial hangers in MRO the return the expect growth commercial this case commercial year. pipeline. our parts historically, fiscal expect sequentially been and distributorships as also strong from Demand those we down track to the from of sales us, part the to In by for and Within new in flying. throughout we quarters, With which QX QX our benefit specifically, growth QX, that ramp business growth the tight generally will that won as from remains be wins year. and our should be impacted strong, you For full recovery parts this coming our of activities, respect we program sales know,

demand as investments additional also in fund to near well in to term growth. the we potentially for our prepare make inorganic We business expect parts as commercial as

'XX, can formal through what FY recovery the we to continue that guidance. provide beginning year. in move quarterly by providing the are given uncertainty, market as Having on to practice we will of based remains going trajectory year of growth today, expect not we said increasing aviation to updates that, For difficult we to recent continue macroeconomic see we full exacerbated predict, QX, return commercial our the sequential and

Over the longer term, well exceptionally positioned. we remain

independent and with Services continues model both Aviation unique business commercial to government resonate Our customers.

sheet our expansion. team are all opportunities fund to and we the markets of ahead I value about balance and for shareholders. of us, strength have and the end excited to delivering have I'm committed the growing, Our remain our we continued

yesterday want recognize chosen effective a from and XXXX. in the We to few moments XXXX Before as Board we Chairman, retire questions, David take to at January. XXXX has until take AAR our Storch. David in David CEO to I started from announced its that served

financial strength quadrupled to it set to the the and is and and his operator him Even today. of it established more for importantly, the on while that numerous David friendship. the leadership, sales great live he crisis. and counsel approach, which to opportunity aviation than both more be I'll the turn With congratulate continue retirement for the he including the over industry, company in doing-it-right questions. X/XX culture is his that, modeled the and company's During thank and valleys by, pillar foundation for and time, we navigating than the peaks I

Operator

Instructions]. [Operator

with Herbert Ken from comes RBC. question first Our

Kenneth Herbert

of largely guess, John, sort appreciate 'XX said lack outlook on visibility. But the or all of any granularity the business? can I full. and, You commentary MRO at on is I full the commercial more provide help year you

So is the up could you it sounds like that? that fiscal provide in maybe the more around slightly, but growth if to what's parts expectation any detail side specifically 'XX, on business flat

John Holmes

Yes.

You've throughout maintenance. the year From and are we got on full, the the continued it side. we in what today, heavy hangers demand largely MRO expect right see strong

in On as business, we've and XX wins the commercial months parts grow, continues online. the driven come they side, distribution by the largely the announced that's to the new business, distribution that last

an parts first growth business, business, bit bit through most QX used well accelerated as business this In parts a story. in demand demand it's of we're of those wins. expect That a as quarter of has the quite of result we moderated the in the new QX. We as year. saw through more in as a of the new inconsistent So

material see The a platforms. demand tight there you've in is supply. lot certain But going on and as result, other there's demand factor for of got in a we very that's strong also

And certain it's we find demand. used where see material consistent platforms to strong more demand a so to and the bit challenging that little with service

story uneven continued on very parts MRO, the recovery a described. growth trading good of the but good -- about feeling summary, So in about I in commercial in bit and just based factors I distribution an feel

Kenneth Herbert

at got that And leverage. you talked low looking organically, opportunities -- other Okay. of in about obviously, you're you've a, there's think you've significant PMA. your be past look to -- That's investment commentary airframe are is that attractiveness sounds as Is the there helpful. an the at? term? It like something marketplace very in might And expectation in either from there the some there or surplus near continuing to here invest or opportunities engines that about feedstock you're

John Holmes

question. Great Yes.

competition greatest strengths and or day, our the we and very one quickly feedstock when around quickly. of in business, it, of sheet for day, now we is terms our the and to right balance outmaneuver the to in capacity market -- looking the that's are So all when material find become very, trading And world very ability right move And able packages close available. material. the every our we're

So deployment the capital that a for will definitely us of be year. source throughout

align can organic PMA and continue underway, indicated As there. early it expectations. to we effort to It's inorganic in growing, with relates specifically, the to at efforts. by nice a have focused we efforts other organic do encouraged slow PMA and PMA and we if we've progress will valuation, but become available opportunities that to and And the on we as look do assets initiatives cetera, have bolster past, it's et get we're team

Kenneth Herbert

could one I -- if just And great. That's final question. Okay.

then you you've nice tied How think about the had some working up we obviously look in in 'XX money As a lot 'XX. growth -- and I investments, through capital. from do at of cash got

do cash see how we unlock there? So we of top some do of growth working opportunity limited on growth think 'XX? in just Is some cash income? about maybe to in capital 'XX the Or free

John Holmes

the is We're to Having make we're to just to improvement, certainly margin proud we've an going terms business, to been trading in the generation. business the feedstock of able that to cetera, cash consistent able engine that quickly. We though, hot to said that's other and positive back deploy this cash see expect parts et material great question, we been our of really purchase that, an of consistent again a in if overall. prior that with consistent flow flow And and cash remain and along flow opportunity goes year, again, of going of deploy serve that advantage Yes. your drive be we've to the cash the to goal it market. generate, or

is So continue can want opportunities. to continue goal, with we to flexible more overall, while our be the efficient and capital, cash react we that generate to to remain working market to so

Operator

comes next with from Our Sullivan Josh Benchmark. question

Joshua Sullivan

there, said QX, you I of on you just wide-body a narrow-body parts markets in you as the the an Just in uneven Is here? and business, any then story can dichotomy think saw some come moderation those that QX, between there comment here. acceleration identify back

John Holmes

from more say the Yes. from the the is I'd unevenness narrow-body. is bit -- a

very where in is cargo to business the the And that's largely throughout trading find in those the market. areas supply And material. wide-body consistent Our support the been pandemic strong. we the tightness and are very, of

Joshua Sullivan

Do And see CFMXX as opportunities Fortress, up performing? with You section relationship picking forward? there, hot as then going far is how mentioned the there? you just that volumes

John Holmes

material it's this And growth up. their I business as could to Fortress that fully at capacity it's Fortress to been us made that's at to extremely beginning a and doing is mean, of Yes, this point, the to job That platform. question. see and on market continue work go their really continues great they the commitments delivering expected. has at we ramped source they at to we But That for a well. a in material with us partnership level operating expand of portfolio, the that great the fine engine narrow-body at point, and full serve agreement. we that

Joshua Sullivan

you throughout need you COVID. you on you would see reinvest? you And said your of what then before the How to just Or do level have capacity? made think labor where need investments in to runway pool much traffic you

John Holmes

business? On the MRO -- in the

Joshua Sullivan

is your investments there. made I keeping how much in capacity Yes. around mean in just guys count great you Yes. that the

John Holmes

Yes.

again, proud just -- we're together for really form And maintaining I of time. very over way well. So and highlighting team, was the the team we the existing through that. that the wasn't COVID, held very, schools us mean that we served thanks holding it we with it partnerships has

And we markets, In I continue is those MRO fund a support to have say, these to ability terms business. we know is know get continue capacity markets with in with certain our source where by relationships the and of results of customer talent by supply footprint, to by hire. the Foursquare our got expand our proprietary the we and limited Foursquare. we're markets, are going , limited our We capacity schools we other in limited partnerships, opportunities considering In we've would labor, to of, we're we to to longer have where interest.

are availability. full, mean we in focus that grow move targeted we look some to again as business point, say full to well domestically. forward, both So hangers the terms when as on labor expansion footprint we're at of ways to But we as going for this

Operator

a Ken Herbert follow-up have with from We RBC.

Kenneth Herbert

John, any of business in 'XX, you costs? in for assume getting considering fiscal the labor what should rate inflated kind MRO be we labor the might relief

John Holmes

Yes.

Our on goal made. gains seen XX We've right now lot improvement a in to we that. the hold to last that is and months, that want business margin of to over in preserve efficiency the we have

that driving with adjustments. we in. labor as we're last That a spot price goal there that quarters. the So X or environment see is the discussions we're about X dynamic is over to increasing has the costs, preserve very having customer But any been the

that heard you've exact the from labor seeing customers, we've as our them, they're pressures same think I we mentioned are.

to for to recognize the value that able to the we they profitable be to And them service attract and and that and so talent. bring the need we us provide be

But so customer on labor gotten with to we've need prices address So far, to very been the pleased it's the change costs. rising a for we've environment from challenging everybody. support the

Kenneth Herbert

see material the to revenues the see sort to need talked from change for past, surplus a step a with helpful. more That's in Okay. market profile. parts associated in like, demand the really a margin the in surplus It the watching sounds we inflection And to how your the we're margin that, in material you've in visibility about should that be at maybe order progression there, fiscal least on step 'XX. of comments, get change? the maybe out should barring bit half little And not What first of in 'XX? about we that fiscal think margin a for of

John Holmes

Sure.

progress well pre-COVID. last of we proud on know, margins over had margin we X configuration the this now And you made exceeding as So we're with quarters very well improvement. the of again, exceeding, businesses, particularly the operating that that

and we'll meaningful As this we recover, where business and to further point, up are a that yet you're shift inflection mix see we're that. margin At parts parts predict where expansion. we step recover from at the trajectory parts we point the business that see would the not see difficult towards revenue businesses, we right, it's of the as overall see

system As see expect But the half we'll as the in worked of don't get up they second step the the the parts airlines pick first chain half year. issues in to the and flying the see change can we business out in you think supply of or highlighted, and I year. demand increases, that labor service issues meaningful that would

to trading the in roughly and QX. down from overall commercial still were were compares from to pre-COVID. both we XX% distribution, parts quantify where our That Just where -- that, in we XX% about

ways year. margin or that that saw this levels, quarter. which seen would But modest business. pre-COVID And contributed next sequential off in So given this margins we we we're we've throughout to the XX% improvement have a got year to a help go again, still there, improvement that partially of

Operator

comes question Michael Truist. from Ciarmoli with next Our

Michael Ciarmoli

inflection, about were our where 'XX. parts, -- gave how guidance, peak just year? quarter, we revenues Or John, give to expectations about I just I I about if that the here? we this last if a inflection? you that? to we commercial do return thinking see should on are we but meaningful not guess, you're think meaningful 'XX? still went I talked occurs back you And how look still we thinking I Or Should at calibrate in -- this going a Should inflection 'XX, mean, on guess, you more know we that be to but

John Holmes

Yes.

a still back I at it's as to -- I think as see great the in a question. go second comments that, the much I for as prior potential to discussion point, we this half we think opposed talk And to from that activities revenues, getting back from mind, out peak in company or first pre-COVID half keep weren't revenue profitable we were took about the structurally when unprofitable. discussion.

we're really, levels, getting And XX% of pre-COVID about I that's businesses. described. kind in parts so that of off just to back And terms that talking

Michael Ciarmoli

thinking I potential of your you mean, it. I Got it. but full. you of Delta, think going longer-term think at And planning I if now. this getting we half What the looked different airlines Are second You maintenance any dialogue? Got spending repairs the What's airlines we're as there's any these -- mentioned about -- potential significantly. Certainly, results economic I at planning? are -- mean, pullback point, seem said global hearing outside any their we're fleets? longer-term think their hangers think guys the like from as kind at the or slowdown. we sort customers color they to all obviously, United, the anything from about and you're be they're are about seeing doesn't from by seeing their looking more it all how for that in

John Holmes

longer demand. overall, people to expected. on we're the of generation of which we're return on than what we the think, bullish the current initially involved is endorsing airlines be I that in And hearing, around predominantly fleet fleet remain for still that the based going believe is

So that us. well bodes for

cancel flights their staffing really, hearing the back about running, fly our that that remains our we're them from customers customers travel system air the -- which that demand right overall the support challenge actually by from strong. can airports pilot It's themselves, think fully we getting customers still But up and to less. have the for is as I so just demand. very That's to focus. really it's very, that heard shortages, challenges for you've the have caused for them, driven now

an going we kind of on of in around business really which perform of period that and operate time. they're the to about we be in fact here, parts and we're feel that a good while still again, the bit a return for long the that uneven platforms so And maintenance

Michael Ciarmoli

Got And just then it. Okay. That's one. X helpful. last

a said some you've and -- actually there. on mean mentioned if made you release, go out I you I back, You press had investment Design The it. And Aero believe, I Labs, and of know, years I they're winglets which the don't to it's opportunity of or a players. maybe so, that kind comparing really lot for the aftermarket this XX significant that, and presented,

So I mean, on potential sort the you maybe if you do of retrofits, drag revenues investment and is the -- you same just for opportunity the would? sort you and you about of see are XXX model thinking that these there in if of for the could mean the in how I kind guys kit? elaborate made

John Holmes

you've same which they're think our on we would XXX-XXX, strong is community STC early with I investment know excited start increased have with that we working partnership We period to We've will some them the we this and actually a that analogous get be the given the today, company the And of I expect extremely over Yes, fuel price say the really announced in were that the on XXX-XXX, that -- to ADL. this solution. fleet. head. interest time. working time. happy very for definitely to airline hit of and large obviously the the this for it on And We're is they XXX-XXX winglets. very been in

developed but that bullish, also as got exclusive in an it relates we've standpoint very they're distribute we're investment from to to and as agreement produced. place the kits both So the

Operator

And closing back for turn call AAR I'm showing in queue. to other the like no remarks. questions to I'd the

John Holmes

in we I again, very appreciate to you forward Thank on interest the much. quarter. our everybody's look and and Once first reporting really time support Great.

Operator

This concludes for Thank today's conference you call. participating.

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AAR (AIR) 21 Jul 222022 Q4 Earnings call transcript