Earnings call transcript Q4 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon, everyone, and welcome to AAR's Fiscal 2023 Fourth Quarter Earnings Call. We're joined today by John Holmes, Chairman, 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 February risks XX, discussed the company's in release for XX-Q XXXX. These for XXXX fiscal XX, the company's

A obligation the information or set of providing unanticipated anticipated GAAP reconciliation In no events. forward-looking call will to to updates Certain comparable company's the statements, provide the financial be forth earnings or on discussed reflect today. assumes non-GAAP measures most non-GAAP company to future the these in circumstances release. the is measures

At turn and the this Chairman, to President would CEO, AAR's time, like call John over I to Holmes.

John Holmes

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

full the For $X.X from sales X% $X year, billion billion. to increased

continuing sales earnings activity. per by share reflects diluted both share strong share per from growth our operating performance our our to improved capture X.X% to a continued margin margin leverage adjusted which in record to structure $X.XX X.X%. cost strategy Our increased per The growth in increase $X.XX and from on higher XX% adjusted execution from driven and is operations

X% per earnings a prior were XX% programs share primarily For operating increased government Sales $X.XX operations Adjusted share quarter from decreased million quarter. to year X.X% $X.XX diluted to share. to from record XX% in fourth prior XX% sales certain was per from year-over-year, to up commercial per year the up the X% and of in while sales adjusted margin the continuing the due were to quarter, customers up government customers $XXX completion from $XXX million. as expected,

in our global cards saw air travel further as continue to recover. We activities growth commercial

USM of and acquire supply saw robust parts, offering. majority we material availability to represent which as our and team the engine visits the to remains work shop drove green continues to quarters, time addition, meet described in to our demand continue opportunities associated for abate, to previous which engine USM additional In tight demand. engine identify

recent to parts our new Further, contract awards, ramp-up. distribution continued

did some to supply-chain we're our ship partners the due During to overdue issues, backlog. delays experience from to material receive quarter, our with against the we working where OEM,

talent, remains our though able us hangars and many levels for have well. footprint our schools availability In MRO, demand serve volume our partnership were of with additional been our but some through remains quarter. to mostly the even drive and strong have in continue we some to tight, time, Labor sources stabilized other attrition

down, and although integrated our performance improvements work by over In the increased driven our government power-by-the-hour the flying was solutions, in years. to made internationally that operation we've we commercial last few that saw better programs,

operations activities continuing of With from respect million. generated flow cash to operating from we $XX cash,

EBITDA, was Our pro-forma net a Trax down was on which QX the from acquisition. leverage quarter-end basis the at X.XXx of at X.XXx end for

As balance such, our have flexibility sheet fund remains continued growth. significant and we strong to our

the example supply team which to RBXXX part be to our XX to demand type had market It side on announced Rolls-Royce feedstock us USM. that XXX, aircraft investment XXX of provides RBXXX used acquisition continue also is cargo nine for Boeing passenger we new asset Regarding with March from to engine business, strong. XXX material This the of we an equipped supply makes agreed in Airlines. serviceable engines American the that support to acquire the with

Commissioners Board our the want expansion the addition, made we maintenance approval of yesterday for making the we announcement, In project. received regarding of to that I final that facility. Miami-Dade airframe Miami Since mention have County announcement from

Department both site. by volume our at XX% Airlines and with United Miami-Dade agreement increase Our the that Aviation will

expansion have facility of previously all favorable commitment. and meets the with project customer financial local long-term growth, market government that we dynamics labor including an dynamics, a of for market existing capacity criteria This outlined support, MRO

fiscal ground QX will break in approximately take to expect and We XX construction our months.

I AAR Miami-Dade will and Daniella be Cava; reimbursed reality. County by thank cost. Beacon million the this would project County Miami-Dade and for expect Miami-Dade their Mayor, Chairman, development Airlines, Council United Gilbert; to like Aviation Miami-Dade the Levine Commissioners Department Board making $XX of and the partnership Oliver important

solutions. separate to beginning stakeholders. enhanced we want company Finally, an It reporting currently I manage what fiscal that segment is community of be the into growth. 'XX, the will supply, and we how Aviation of of engineering separating This prepared and operation also way investment the insight to the integrated better disclosure highlight three areas with provide the reflects Services and segments. we QX other Parts view and our will

to With results Gillen CFO, it the Sean over turn to that, I'll detail. more in our discuss

Sean Gillen

Thanks, John.

in Our quarter of up were XX.X% sales the $XXX.X million year-over-year.

completion across Our growth commercial sales primarily the year. by sales commercial up driven were fiscal of were previous our programs government our due certain our XX.X% in to activities down X.X% and government

quarter defense a We also shipments quarter. margin saw XX.X% distribution Gross from in in due to versus XX.X% the profit timing in the was the OEMs. sales certain year of decline prior

contribution performance higher business margin and solutions a margin activity gross which of John profit our in offering. commercial mentioned was Gross margin profit The Trax, was commercial is reflect business our XX% from and margin our the that commercial strong XX.X%. the government in improved integrated

cadence million, in downward year. expenses XX.X% figure detailed but or up similar certain percentage This This quarter last $XX.X sequentially, was release. expenses in is other are and that were $XX.X the earnings QX, SG&A expect sales. In of the million excluding down year-over-year. SG&A press to a Trax in sequential items we

$X.X was last expense higher rates million million borrowings. driven quarter by interest to for and the compared $X.X year, interest Net

was XX.X% was tax to and quarter. which due the rate we than state the in quarter effective anticipated items in other Our had lower tax certain

be effective XX% to and 'XX expect the to QX FY approximately FY in 'XX for We approximately our year XX% of tax rate XX% full

million. leverage X.XXx and In QX. EBITDA. to ended stock $XX.X operations the from of and repurchase opportunities to Cash light the attractive our business, other was not we quarter Trax in of million debt during elected continuing net We flow of from net acquisition invest with operating XXX.X activities

We continue to opportunities. stock quarter. in that of of of based of expansion drive note, in evaluate our attractive program use year alternative and deployment expect investment both and they the in will we'll remaining this on the On the we which are fiscal to and authorization seeing capital $XX have remainder upon capital the repurchase remaining market over usage we million cash a opportunities operating the USM deploy for elect QX, program,

repair material on for to supply a that FY Regarding our our Airinmar. today commercial will distribution annual an consist solutions our file solutions and our government consist of landing and the FY consist segment and airframe results and and financial on engineering. component for The an will basis. basis solutions programs segment and segment will MRO, The gear X-K 'XX of provides Trax used MRO new we quarterly for activities. power-by-the-hour 'XX engineering the plan both integrated new And software and resegmentation, segments of component and serviceable as such parts

consisting Our of systems remain will unchanged. mobility expeditionary services segment

income. from measure we are the gross addition to of performance segment our changes, segment to profit operating changing In

be for greater changes We investors heard will well the transparency, and received. on from frequently hope we analysts have desire and these

now your attention. back Thank call will the And you over I John. for turn to

John Holmes

Thank Great. Sean. you,

most our below from recovery for about measures air we their optimistic travel have you demand And in pre-pandemic commercial strong. the This levels expect we continue. the means Looking growth major airlines services all outlook Commercial by most remain and to remains recently, as for many markets. market forward, heard that remains

Specifically, we expect remain interest in robust. to USM

growth to to to Instead, Although we do it believe aircraft take has is supply and lead profitability. delivery improve increase. constraint. and currently more we continue it supply we USM will as not impact additional our retirements airlines it is USM of negatively to the growth constrained, availability been as of expect expect new improving, Notably, a

new distribution, tailwinds. which lines we win more The continued OEM more and expect OEMs, also supply In will improvement more growth. provide with market drive chain recovery will to

when year, online. will throughout the our to Airframe MRO, largely be we expect comes capacity expansion Miami we remain are full In adding excited hangers the more and

facilities. Additionally, airframe have at certain locations customer we MRO available access our also long-term labor. growing evaluating component are capacity and and have we land do in top we that, new interest meet of other expansion to On demand our where repair to and of

and Finally, ramped of a in FY 'XX yet we time. our business, translate remain meaningful value government will growth opportunities over in contributor our not will our pipeline F-XX fully be in confident our Europe market into proposition program More - beyond. is generally, in this additional that more and

current throughout on 'XX. our and continue With remains environment a FY be respect of to delivered we to operating basis to QX. so practice and to dynamic plan sales On that similar and guidance, our the our our an outlook businesses providing teens specific operating quarterly adjusted driven year-over-year expect note, in in see QX we to by what to - be margins just we in commercial low exciting

Looking slower of a albeit last expect than ahead, at another margin rate year expansion, we two years. the

this to to know, targets you New York, look holding we to value more financial Day deliver commitment an are and in seeing strategy, our shareholder Investor discuss Thursday, in you As continuing to we forward and there growth detail. long-term

moment and Before an delivering to for supporting I other our year customers taking questions, to in partners take thank a our would like for outstanding team us.

maintaining important expanded a this has inevitable support success of improvement quarters more operations with margin again, capability in adjusted I'm result team. proud earnings exceptionally USM of make upsized the new of while once the and distribution our flexibility. We financial added efficient, continue market. our was The of Trax key operating our extended challenging adjusted consecutive customers, facility out and MRO Coming credit of not an our to pandemic been and and several nine record wins, superb acquisition added

over will for I that, questions. to turn it operator the With

Operator

first question line Truist the comes Pete with Instructions] [Operator Securities. Our Osterland of from

open. line Your is

Peter Osterland

I'm Thanks evening. Ciarmoli. Mike Hi, taking on good for question. our for

will Miami add new just time So in order ask is many fully? the to first, capacity? And expansion. wanted on there frame to construction Once the ramping you how facility to support need what's operations up hires additional for complete, that I

John Holmes

in and thanks, call. the on Yes, great question, for joining

quickly. we've got one fact an XXX complete, certainly what supply expansion. the we where for very to that a in expanding this new operating construction expanding go people of about is access which a site we of hiring we strong in very Given for that ramp is feel existing Miami. labor the site have we've time, anticipate And We at some is once been to criteria again, up quite for actually expect we're

will well be in we going of So live. recruiting advance that talent

Peter Osterland

order I year. And then but SG&A, do quarter, I of helpful. excluding had else see of just of changed bit? year. the SG&A kind or about coming was margin Does a to All to guess some the the the are that start to any expenses and that viable mentioned on around given the there wage in track math anything growth just had with the of Particularly Very flat Or a this kind margin versus on see for sales. closer that you dynamics prior XX% target? still past there right. the target outlook improve you need year-over-year what has Thanks. the going you in follow-up strong inflation expenses, trend a to

Sean Gillen

just I'd top store commercial see I on sales. need of be and government the at And the both Yes. get on line target say there, continued to what is think remains to we'll sales. XX% to leverage

in the higher still As whole XX% see doesn't sales to slightly that is to can inflationary in it the environment, more this but I top SG&A, we even do we think massively leverage get of on mentioned, we line. the as move company. And Trax needle

Peter Osterland

questions. for Great. taking the Thanks right. All

John Holmes

Thank you.

Operator

Thank you. standby next question. Please for our

with line Herbert comes Ken question the from Markets. Our RBC next of Capital

Your line open. is

Kenneth Herbert

quarter maybe or end where seeing fiscal about seeing Hi, quarter. area? in you're should in near Sean, sounds clearly way John, specifically how wanted either sort follow more and provide you've It the on the nice think first your John comments some opportunities you term opportunities across Can USM on and the the it USM feedstock the of very I fiscal of to sounds the and like marketplace. to in up, year. some got you're 'XX, on investments we first any first granularity more like

John Holmes

move being on speaking, Yes. I and Great have the supply we're say, 'XX, we're and throughout capital able able FY would come in are know, USM 'XX we of when able loosening seeing and far generally been And to is we're opportunities. few I appreciate our off as you quickly. in we're starting between, Yes, deploy - the question, FY deploy unique And big call. with you the our to one we here some up. that's market still presented and advantages these to again, there's is things

With that's going have respect brokers we other assets are or I'd are have that, away on we areas whether prefer engines. focus that of market, in et meet given that through changes. dynamics. through cetera, a that Airlines even talking market lessors commenting stay portfolio changes, that And asset, types, to that available all on to significant fleet to But going support. contracts from to the have specific competitive we are

Kenneth Herbert

Okay. Very some USM. helpful. of your as based you and obviously you like on it sounds comments, transfer into this And feedstock invest

of able imbalance You're be get fiscal getting correct? the 'XX, any the guidance an mean, year? in pricing sounds step fiscal to through for you enough down the sort material on I of expecting - least there's at the you're price or should imply not that USM in it significant still doesn't like in marketplace the

John Holmes

feel in our the Yes. maintaining spreads throughout confident definitely We year.

Kenneth Herbert

Great. And question. just if could, I Okay. final one

I of MRO On the capacity a heavy continue hear getting MRO some constraint to sort out large captive may business number maybe heavy be getting the and side, to extent. out we mean, airline operations - of of about

labor importantly, I an opportunities look within a it So now. there add the you get maybe backlog if of right like - MRO to the How seems guess, sounds capacity within be sold for would in ever segment? like are you how's heavy other sense to And - out better look far or more your lot additions environment was I it to think make capacity. maybe there's your there rates,

on comment of you standpoint? can you're from that sort So what seeing

John Holmes

so other talking to commitment multiyear that building with We're align potential from The that. we Yes. and United new sure permanent that expansion customers the that make we to the expansions, Miami any want those have about capacity, drove we're of other commitments. and we that are

with airlines to willing sign We anticipate multiyear are absolutely us. seeing because capacity shortage time, agreements they being for some

So that's encouraging.

rates, adjust As think airline contract have rates. about work the over to calls. we a productive couple And cost for result a our of expansion also to, of rates, we've been with contract we labor to labor it But customers them efficiencies, price we've an drive but last in relates margin the have discussions. in of this that to speaking, that able environment, on labor customers And market. our in with to reflect touched we've I very generally those labor business maternal the the some seen as by inflationary dialogue of

Kenneth Herbert

Okay.

within segmentation it there's bottom of is new that get we an margin assume to a sort should And of so business fair terms expansion as we in that we of to bit line some better, repair see the the out drop business your area little the see and that particular? for broken in

John Holmes

that Yes, just margin you expansion would is more say I we talk have on I of going that The focus customer. our that through when in getting is increasing that to keep to mean we really facility. come price business. we you margin can with broadly, us through That's Thursday to together. time have about labor into costs. expansion the to the expect margins the But even not visibility But work investments on the increases over

the things deploying get like So structure inspections, cost have drilling hangers, the whether leveraging that XX% inside there more or it's paperless operation. efficient fixed our ourselves throughout volume technology more Miami, to to

Kenneth Herbert

Great. Okay. forward much. to Thank Look Thursday. you very

John Holmes

you. Thank

Operator

Please for our you. next Thank standby question.

question line The Josh Sullivan Company. the comes Our next Benchmark with of from

Your line is open.

Joshua Sullivan

afternoon. good Hi,

John Holmes

Josh. Hi,

Joshua Sullivan

there. follow-up of on Ken's Just to question kind

turnaround of scheduled at peak? the hear turnaround facilities you and look times. you care when when kind at think needs MRO extended But times do the we market, Looking at about

John Holmes

turnaround steady a our of we're terms own last several pretty for running I times hangers, mean operation In the in quarters.

we're that feel we quite So actually hangers. operating efficiently in

and increase. the relates many I are the providers, turnaround seen outsource hearing turnaround repair think time, in lot and We As going same about do we you're - that overall repair we difficult. that's times is say is them the peak To our from of down to to supply we're to those it sure We that repairs, had own when have again, environment feel component chain to good come feel try a shops. OEMs. hearing, of But that thing improving. predict what we've I'm TAT and

times. year a should this so turnaround year be And better than for last

Joshua Sullivan

then as Got you it. completed Trax, And maybe far any as KPIs or to can you've you're that looking share complete?

John Holmes

Nothing roughly going team there well. we're the what specific into more our of quarter at On point, would it. possibilities about It's have plan. acquisition. detail more that companies. generally extremely good elements is on really say that Thursday, provide Trax ahead this track about I integration The two is very The I for AAR we remains or excited of and on we'll the combination, our the vision feel a between the the

Joshua Sullivan

Great. time. Thank for the you

John Holmes

Thank you.

Operator

Thank question. you. Please standby next for our

next Spingarn Robert of line Our question comes from Research. with the Melius

is line Your open.

Robert Spingarn

Hi, guys.

John Holmes

you? how're Rob, Hi

Robert Spingarn

John, ask Would to and traction is this environment. getting good. unionization wanted seen and Very with spread constrained you labor between maintenance widening? maybe you that heavy talk we've is Thanks. about airline it. I all labor labor say just the all simplify just you this in Would that to wage the the your captive say and

John Holmes

I contract, on, yes, increases data you're of the seeing I but result as the look a some would that, want on yes. to new some say, that based at of

Robert Spingarn

Okay.

So this additional just you? provides tailwind for

John Holmes

are we've customers. getting again, where announced expansion. considering, other an that long-term expansions that we're and commitments doing just we're from There we're And Yes. only

Robert Spingarn

come I'm nowhere which going just aircraft increased they're might And where as seen Airbus an to starting from rates you business you be seeing those through. to they're be. I impact effect that get curious OEMs, to in Right, from the and coming ramps, terms the that. near Boeing to any have of then your more extent right. understand in of out

John Holmes

nothing seeing trend or in USM say would The point. at the market. are thing I slight a of loosening just a we loosening closest broad supply this a - of was

We are seeing from it's cetera. all quarters, lessors airlines, more coming opportunities come whether again, up. like But et it's again,

OEMs of production for to that slight assets increase opportunities in assume out of fleet we the is the us the you're acquire So providing that's seeing some that movement driving

Robert Spingarn

distribution with to cash think term, for we we a or flows, cash just target that exclude look long maybe should then, business parts there conversion is Sean, about? free And if were the Okay. that you, flow impacting

Sean Gillen

about be we got kind new opportunities Yes. that is we you outlay distribution QX time big around we'll that, terms time USM giving capital, in I thought more time mean from as guidance net with moved mentioned, We'll on which specific in aggressively stay generally to well. away agreements, as that capital to of back We've from over see on. an of time. We or volatility which come think saw saw we as some opportunities upfront our period. working

very focused well shown obviously the I is But as company, as the on outside which we've think flow I you're pre-COVID overall improvement part cash cash that try today, efficiency improvement working profile and margin continue think net flow in the the of of that, AAR of that AP to and some improve of capital to well. on seeing

Robert Spingarn

much. Okay. for Thanks Thursday. the rest I'll save so

John Holmes

Rob. Great. Thanks

Operator

question. Thank standby our you. for Please next

Ken the a follow-up have We of question line from Herbert.

line Your open. is

Kenneth Herbert

can was? on Trax contribution maybe Sean that Hi, or the John, what comment was of what percentage the growth you in quarter or

John Holmes

we Trax expectations, expect on modest. this be was quarter, numbers. very would reiterate very to that very to a track our accretive FY modest was And modest. It with we 'XX It

Kenneth Herbert

Okay.

can as double full high get comment fiscal I'm you you of for the Great. we But Thursday. we'll revenues sort on digits, a starting on year? more Okay. sort least And this of fair point as expectations about a at 'XX, level think at look low are sure for of then into

John Holmes

Yes.

be growth expect on teens we're mentioned, QX over bit when I'm last And of QX over sorry, - little QX long-range Thursday. about we we together year. kind talk mid-teens growth a As growth to targets more low we'll

Kenneth Herbert

Great. John. Thanks Okay.

John Holmes

Thank you.

Operator

call further queue. no the remarks. in questions showing closing I'm turn back you. like the now management I Thank would for to to

John Holmes

we and Thursday. appreciate many and Thank thank time you. interest, forward very you everyone, on you Well, to Great. look much. seeing We the of

Operator

Ladies call. Thank and conference you this today's gentlemen, your concludes participation. for

disconnect. You now may

AAR (AIR) 18 Jul 232023 Q4 Earnings call transcript