AIR - Earnings call 2 2024

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Operator

Good afternoon, everyone. Welcome to AAR's Fiscal 2024 Second Quarter Earnings Call.

We are joined today by John Holmes, Chairman, President and Chief Executive Officer; and Sean Gillen, Chief Financial Officer.

Before we begin, I'd like to remind you that 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 guarantees of future performance. fiscal are Factors the annual section Form for uncertainties and earnings and report or XX, providing Form events. anticipated and assumes XX, obligation XX-K Risk May or the the of the August risks discussed company's to in release updates company XXXX. In to the on unanticipated XXXX, XX-Q These ended year the provide fiscal statements, reflect ended the no for quarter forward-looking future circumstances company's be will information financial on the non-GAAP Certain today. discussed call A these GAAP measures earnings turn AAR's Holmes. to CEO, the measures time, of conference for to are of over completion call Chairman, call company's President the and the available call the replay this reconciliation I the on-demand on non-GAAP would of after website. At John to most listening will be like set comparable forth release. A shortly this in AAR's

John Holmes

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

Before we agreement wanted on discuss this comment I we announced that these morning. results, the acquisition to

in as repair. in of we viewed years, position growing Triumph's our have and market Support and for focused proprietary Product group on many have differentiated leaders long for been the services For this the market we one

of fact, possibility a AAR became than acquiring number In in business. CEO X had the more this I CEO, of Triumph's I've the years since about conversations with

meaningfully customer broaden in footprint. expand of our this a business The the an scale agreement globally year, which an will excited next-generation So similar to will enhance long believe we've reflected very is to repair our add and our repair I'm own had acquisition existing Triumph. We profile. capability, relationships that margins, our and that this Trax margin anticipate with earlier that announced bring is time, deepen this we we idea we quality and that have its acquisition component for our operation, reached

repair portfolio large Supply, Support integrated volumes existing development associated a integrating PMA solutions operations. Triumph benefits significant with numerous and expect with DER engineering this and our Part with We Product comes capabilities. business's and also

this of accelerate expect will We growth areas. in these our each

facility help Asian high-growth the Additionally, AAR further will market. its Thailand penetrate

Finally, this be this capability XX%, stated we flow it value differentiated business a accretive team. Overall, which approximately accomplished expect our significant acquisition, and into adds a strategy significant leadership cash fits squarely of with opportunities. synergy highly operating comes talented to strong profile and and margins scale,

another resulted adjusted strong to performance, Turning financial which record quarter and delivered in the earnings. quarter We operational results. of second

quarter customers million the Sales year-over-year continued Supply, and to and X%. Within up to our $XXX were Parts by demand government activities. sales material customers used million. customer strong were XX% service driven Specifically, up and from the for prior increased of sales commercial year sales quarter over $XXX distribution commercial for expansion increased XX% XX% to

our turn our and that repair demand. in navigate USM, partner to Much continues extended sourcing resold continue of requires we is high Regarding global is material before it times team to work vendors. secure repair with this material

commercial product increase slight Solutions, a new hangars quarter which driven continued with over industry-leading down the in year prior Defense. of XX% year operations. In repair as over encouraging. In quarter quarter, opportunities the to saw that government in XX% performance to the parts Integrated year were strong Department AAR due and prior repair to in which support scale lines, slower the have to sales our increased booking pallets by well. and continues that we and is and On sales over combining flight growth has both up with sales see of note, component value our distribution of to to were government. our sales than shipments growing Services programs. Trax this growth parts up more parts New a the government Trax's decline note, prior existing our and sales and started contributed quarter hours continued X% the power-by-the-hour engineering, offset a due were across On the Trax with customers proposition to across software programs significant pipeline resonating in across good. Expeditionary our mobility integration financial strong that performance of also as go the U.S.

in Mobility's end the in As in Ukraine, activities return result of this support to funding normalized expect fiscal of our of The movement decline and not has U.S. used are in a sales levels current is diverted the products we reminder, the troop which to more year. effort environment. being the to increased towards

Turning to profitability.

prior Our XXth straight quarter up of the year parts Operating from represents Trax and quarter. also X.X%, to adjusted margin this was our repair in expanded operating expansion. adjusted overall our and in margins margin contributed engineering. Further, improvement. X.X% operating supply margin year-over-year

from second a $XX from operations continuing share up the in quarter. this continuing per from Our share XX% to last generated respect of diluted per we operating share per in cash, operations provided cash year, flow activities quarter adjusted were operating $X.XX $X.XX our year. With -- million to record earnings by

increasing We million quarter. Parts continue to to our invest see net opportunities Supply during segment, attractive resulted inventory which $XX in in the

drive distribution. continue for these both to growth and investments expect We USM to

at EBITDA, the flow adjusted in the agreement X.Xx leverage enable growth such, of as quarter sheet Support cash Triumph's and only to end acquire Product and strong, Our exceptionally remains resulted helped business. which our continued EBITDA balance

a the of AAR corresponding Will includes We supportive our a which World market to have offering extension services airframe announced to expansion inside the of had our and expansion relationship and the criteria Alaska and Turning business in and wins including an subsequent Airlines, quarter of customer with the demonstrate product long-term during business. to agreement dynamics Oklahoma this with our announced repair and Miami, meets engineering, wins favorable our we and outlined hangar planned commitment. City. Similar government, capacity These announced customers. In to that the capacity of quarter. at Airport labor segments new previously Rogers airport multiple MRO expansion strength in the all for several we growth, local of across

industry are opportunity this to who contract we those would and supply Agency this USM parts multiyear Logistics for And with new engines. also, & our all Pratt Alaska Maintenance supply Airport to Parts distribution City announced a Whitney the captains We made products and to announced a MTU Trust to fuel we like agreement extension XXXX control Supply, Oklahoma about Defense multiyear of possible. In contract. under thank Airlines, excited Woodward's

services. With for Airinmar in Sean services to multiyear announced I'll new in with carrier, warranty Turkish-based it over CFO, that, to turn discuss detail. more Solutions, support Finally, the agreement low-cost Gillen, our a Pegasus Integrated Airlines, results

Sean Gillen

John. Thanks,

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

well growth solutions, most distribution the year profit by margin parts of activities, from for by basis. included as expenses expenses a softer $XX.X our Overall Supply, quarter in business improvement with particularly our to that partially Supply prior notable investigation was as and John strong in and was driven and margin on government acquisition up XX.X% million programs the XX.X%, which our in margin and commercial declines Parts in our profit and an reported up were sales XX%, quarter profit primarily across Trax. and the up commercial reflects the prior XX.X%, which margin in was XX.X%, Expeditionary. Gross business was those the gross sales $X.X million costs. basis, mobility Gross quarter new performance were were million, performance year contribution mentioned. SG&A from of in from up offset and $X.X in adjusted on from XX.X% Parts due the commercial integrated across operations, X.X% Our and quarter government amortization in

continuing quarter million driven for to higher flow million compared SG&A Excluding interest $XX $X.X last by items, of was sales. Net rates was or interest these provided borrowings. in operations was XX% year, million. activities million operating $XX.X and $X.X Cash expense from the

addition we the by to inventories. continue million the business $XX In generating in cash, as evidenced invest increase to in

Our Product million. us and note, $XXX we Support. On to both Xx adjusted our our enables and acquisition, leverage to planned the is release website, respect that namely the announced which the posted investments, slides with to with acquisition indicated net EBITDA, at balance exceptionally in remains Triumph of as make consideration sheet organic inorganic the strong that

subject rate receive the which of March represents million synergies. value the $XX this approximately of as of of part to expect leverage is for million with we is million equity facility. multiple price conditions, XXXX, is benefits financing subject to inclusive in conditions, acquisition transaction. Net The of issuance, of of supported regulatory EBITDA present will is equity. Inclusive $XXX closing other tax the a year purchase target bridge a X.Xx closing plan approximately that with fully net and Funding for ending of a permanent customary at conjunction the conduct $XX run EBITDA and tax acquisition We fiscal a to XX.Xx benefit, the the and our debt to closing include the and clearance closing an by market committed Xx.

begin by of We synergies the year run to fiscal end closing to and realize realize shortly the rate to synergies fully expect XXXX. after our

million our in of which call with full and per to consistent transaction million accretive adjusted earnings year $XX and for to the include delever to is fiscal post our per earnings adjusted current accounting, The per I you target noncash outlook your and flow adjusted $XX amortization we operating over we to expected close. that growth to AAR, for share the cash associated will Given the be attention, expect back turn approximately anticipate with now not our further practice, will both to similar and earnings John. be XXXX. Note share expense year. Thank purchase

John Holmes

services continues I expected quarter a Great. Sean. revenue aircraft, we to drive in the aftermarket generation mid- new issues continued of Thank expansion. for signaled and newer calendar to life engines strong to aviation another late operating growth delivery as and commercial you The for be core are is demand our for market that know, have demand increased customers environment related you, which, our constraints macro very adjusted aircraft AAR. XXXX. Furthermore, margin year-over-year strong am and for delivered strong, to pleased

growth parts USM new and parts activities, we For continued our distribution. expect both in

and to the We material and operating as and in invest at in in forward. In near are that distribution wins hangras investments capacity repair future. to these well new expect foreseeable USM our engineering, expect as drive both for results continue expect we will going our business

Oklahoma our the Trax about and planned at financial well and our Integrated both positively contributed Miami results. acquisition excited is our expansions performing facilities. In are City We Solutions, to

a Our the portfolio believe and is strong and Defense we of have opportunities with customers. government stable, of other pipeline programs of we government Department

calendar to we are wins. pipeline XXXX, converting business we As focused new year this turn to on

continued overall, with and year-over-year to sales forward QX, Looking we growth. respect expect earnings

assume not growth, and have to XX% that, our the combination. Further, expect to quarter does the capability operating I'll achieved. our ability for to sales and execute high record operator results acquisition of to differentiated, any our over to add cannot produce incredibly that Product be Triumph Product favorable from Triumph margins aviation proud to offerings, turn the acquisition macro more Product and high-margin year-over-year do work impact powerful of delivered. Support's to excited single-digit strategy be announcement. I'm Support welcome overall we services we talented to meaningfully team we to The continues that AAR. With Support Specifically, complementary, environment the accelerates questions. our just continues with it to consistent a adjusted to be the the we This team

Operator

will And Instructions] Spingarn the line first Robert of Melius come from with [Operator our Research. question

Robert Spingarn

the Congratulations deal. on

John Holmes

Rob. much, very Thanks

Robert Spingarn

and maybe ask question top a let's that, have with the then start to like line. the multipart But on I question on business. I'd a

you You months? the in XX next sales about July? to accretive that about How talked Is we growth that which growth, mentioned, be Is target? I think your should sales target deal long-term that that? think, do but

Sean Gillen

Yes.

to that to higher as X% -- -- think about deal higher think range. well I I we've of I XX% be we accretive it to we closed and sales accretive that it talked will that to -- and the after long contributes, term, think end and the as growth it's think push that we're

Robert Spingarn

Okay.

revenue a -- think cost and synergies, synergies. I then to detail side, ran little And just through revenue side about know, the on you bunch. that John, if you could But talked I high as well level, I bit and Okay. you then a wanted on the

John Holmes

from expect Yes, $XX very And that in confident number. areas, we we is cost. that very, multiple to cited -- million we sure. and come all feel that's that The

a the that good as of our we're existing chunk and New to of -- X amongst some with repair X well Triumph, synergy. and -- in all in sites sites we've a cost will drive York Now got with as fair taking that sites bit of those rationalize Amsterdam on capability opportunity the

to program quite Triumph, support of lot power-by-the-hour but that send that go Additionally, there's in vendors. a out today our actually goes repair work could of to we other

we that ultimately so work capability would acquiring. that new consolidate And we're on expect based to the

believe would be revenue blocks not, point, synergies, that synergies. AR those and of we into any of So Triumph number there's building we where the and have this of At a not, amongst cost but factored X $XX to can you we're customers the in that that major expect not. cross-sell strong lot where and is is Triumph strong customers opportunity is conversely, quite million,

Robert Spingarn

Is it your this parts. as fair of for to a platform think good

John Holmes

In and well. have synergies business the that trading units, as so and business the repair way

Robert Spingarn

dilution pretty let's accretion Sean, the versus be financing, last term, for equity stock. just unless on entire but would bought It debt the like one is equity thing. the you Okay. Thinking say, issuance then long this, the And potential you. the similar, more about seems back

calculus that given sheet? So especially your balance behind the what's

Sean Gillen

Yes.

So the inclusive the good actually is about us balance an And equity puts targeting of which I is spot. that we issuance. close, way sheet -- think a would Xx be in at think

you closer X.X, growth other continue be thought to investments to balance probably If more curvative equity on the continuing there to businesses issuance, be drive the as help the just you'd And and for is well. an have sheet allow to across didn't X.X.

debt. So the evaluating equity alongside

Robert Spingarn

Got you.

more just of end a Okay. end you do one. ending is headwinds overhaul you because from year time, John, some business. in component on because overall, bit of Last one core where those the a at either tailwind cycle. up -- you you last any a is And business about wondering, or It's either Triumph, certain coming have the an have landing the a have starting. coming headwind talked the of having or a cycle or little

John Holmes

Triumph all out both here, of businesses of. of gear the can I as cyclical. the most that involved not repair the think I is maintenance Sitting that mean, all businesses, heavy in landing as well

MRO So -- to landing be really gear situational and the that portfolio. certainly operations other Triumph's would our be that would operations in versus

Operator

our moment come Stifel. Bert with that will for from line next One of Subin question. the And

Bert Subin

overall the us difficult high you been on Triumph does Maybe, provide to John, start to this Can the on you this context I'm you just up think what that organically. acquisition for level like, do speeds how this And of asking AR sort I reason why and guess to the too side. some process of you what have just is about the growth? do think brings would to

John Holmes

Yes, great question.

Just a there. thoughts few

want transaction. to strategic that fact together First that I, came this at we would and mentioned that I -- and The for a the on have not the of out was felt CEO of beginning, business as to complementary and Crowley Triumph, AAR's Dan all, this I was highlight This several negotiated process. worked the of highly years, offering. be that a

agreement reach were So is to of number able to things. a Triumph. What pleased aligned that very stars the we with brings we us and were it

are straight around work and blue-chip as cost for customer as the lot from is an today. near across AAR just of capability flight base, has programs. of there -- taken create in been support also sends them of replicate and well come They footprint has facilities decades that today mentioned, combined to which that synergies incredible will for of decades. a great be out have that rationalization our X impossible Triumph would have that to many quite in-sourcing I there deal There hour As with a

are are develop, Again, well years as over that it very, ahead relatively X,XXX for DERs. they've business our there. as P&A small PMA but the of and solid, in PMA, efforts still DER, of those through that is to repairs very took we and jump-starts years scheme really relationships those years a come So got proprietary the their Triumph, things in where

to amount And replicate So a significant. a here of very it tremendous have. the capital margin is very, taken would very long and time accretion what they have

close targets our forward double-digit pulled you of ultimate get our about If margins, XX% to in AAR years think operating margin, and of beyond. couple to growth that a long-term goal this by

Bert Subin

it. question just a there. Got clarification Okay. Maybe

you sort What this to PMA provide? about the to similar do any is organically? that. this about I the doing Or side, in complementary types talked it you what of doing does thinking know On of that there guys you're looking can you to organically sort have parts of were be that? granularity for do organically? going Is you is

John Holmes

And what business. of organically Triumph nice out the parts, and It's to think for got focused to but growth is PMA complementary focused. we on legacy a complementary and largely parts, efforts plan interior comes Interiors focused portfolio they've AAR where PMA the there is nice about their which which interior portfolio, on a are

Bert Subin

it. Got

the then And indicators on you're positive it sounds seeing side USM, Okay. like of other parts, some there.

in You sheet try to good material. years. Obviously, been last over have balance pretty acquiring to shape, the pretty keep few the presumably, well pricing OEMs keep

spread you And can so a there's there. good keep getting likely

still price. what of As USM USM you the recovery? terms sort do you of you're supply comes get inning that consistent And think we're out, should in, with seeing? what Is in

John Holmes

to that when the demand be inning, in of strong translating market we presented we're still so going got by I that high our some this in delivery spreads. balance that's is base why continue go. indications high challenges is and to a GTF, The think that want terms you we to of flexible instruments, which the That growth and the we be the that's way to rates, act make is what for getting can the seeing we from to margin. to around see Rob's why And will in investments maintain in we've pricing saw business, which potential that customer that And time, nimble question all opportunities. why equity terms increase we're is a sheet obviously, back continue inventory an of quarter. And

feel be then still an for that that even to demand fleets that, once continued be dynamic retired will see available better we So there teared aircraft to to support more to and material. a go. And the has you period is ultimately do ways got start where material down,

forward access looking it and got we've fulfill So we're assets you actually when increased to tear start retirements to down the that so more see to demand. to times

Bert Subin

it. Got

Okay.

customers me. It government for a been source question Just of weakness. seems like the final relative a

pointed we on for to doesn't think changing? dynamic it X% are that 'XX sounds ton commercial. I a out growth XQ. Where change relative you It like in

So I -- digits -- made John, stays at single-digit fiscal that high Is for sales third. think because is you comment, low digits that the the growth to low in why? what that Is that single range? probably it double

John Holmes

I parts years X% characterized where from considerably growth think right to you're There's business relatively obviously year-over-year right. exactly new there. distribution is things Yes, X was down now, it ago. by is government, this the is stable. our business One really That X

As last there. the our We've seen that that positive we in in increase some bookings is some see few mentioned, signs a we dynamic months.

we but slow the And shift. part of the they're award. the of some had of year, Afghanistan business opportunities long-term government business. But ago, So this, some we're with of right back the that short-term Afghanistan we well over majority that in have out bid from this withdrawal, is offset not optimistic the the a sales programs half wins very know, wins decline the years increased distribution backlog, saw We've that couple with fully. have that as we'll a down of to just you really now, volumes our of as see as government pipeline

just from we would to time those out a of a So next that the meaningful some they But to for you through our the about once it's will convert clear contribution see We by point, protest we fiscal have meaningful win, likely a one unlikely until be any to win. go any government them remain those got year. and programs confident value one need of ramp proposition what even there. your convert a government, very very programs you up, on do we've the to and

Operator

Our next question. go Securities. Capital our that from [Operator on Markets. question Instructions] come question. will the will RBC next Ken line of from line for come Truist moment next Ciarmoli And Herbert with with Instructions] One Okay. We'll [Operator of to Michael the the

Stephen Strackhouse

Ken is this And Congrats for Herbert. on acquisition Strackhouse Steve on guys. the today

John Holmes

from you. hear to Good Thanks.

Stephen Strackhouse

a Day, question. talked following Rob's margin think So you just repair were the of XX% to regard How think a the business? I about I just margins, to baked range. XXX the M&A of or for your think that you that forward. And and expansion I operating up pull about about some of we to just to adjusted points margins margins bit X.X% Is quarter, those at outlined should think the probably about outlook, in engineering. Triumph operating on Investor in little X% into outlined basis that? you With the outlines was additive

Sean Gillen

No.

at to say bringing segment, go, X%. I'd you as our accretive where So well. those. that north like about the just that, it is layer what over accelerates Their in think the bit past on to July this And specifically those if was last kind that then a you an months the in, margin R&D ability outlook from And will And we've and outlook. to organic Triumph a little we're business XX XX%. standpoint about operating as of done margins just just top, of get look given business

that does show up the in So kind really that profile margin shows bringing some of and up, the capability, of differentiated and business.

Stephen Strackhouse

just into those might little be have I that free said early you get And cash back maybe gears free quarter in And to cash of and capital you then million Can then a acquisition. the Triumph flow so. with it half just some takes of that. about but expectations or you the puts was was discuss in to to $XX Appreciate regard and a business. cash those, for the the any strong at year? positive realize the discuss switching working Free cash.

bit So into of dig to little that kind just a I deeper. wanted

Sean Gillen

Yes.

the to convert as half that positive mean into I first year, supply be back investments to becomes of inventory flow positive. And We'll business. about about you of invest not we of cash USM, we does Triumph year the John year. back the as strong expect looking part in it expect the heard it's the it less then talk we think available. the one flow. as more like made be in you conversion, capital-intensive with But cash to the the strong businesses. the terms have That's is in business, half working only business of of continue So we'll margins, because reasons continue, has free the than Parts Supply

standpoint, So the facilities And as working the be well is year. bit then you stable capital grow CapEx to a a million and in can CapEx operate from $X-ish more tends a the business. more the

you free when flow a million consistent. ] or So with nice [ It's working million relatively EBITDA kind being $X of ] about capital cash of think $XX generator. in [ million that and $X CapEx,

Stephen Strackhouse

little could customer. I low CR? one are with thinking about squeeze the know are if guys an kind in this on more for you guided -- How thinking then, government I so a And regard down you follow-up Awesome. you How digits the maybe to just year. to single that bit more for potential of about extended

Sean Gillen

Yes.

this upcoming digits So to high the single XX% guide is for QX quarter. for

John Holmes

quarter, that's for And upcoming of the for back the the half the year, just not quarter. just upcoming

Sean Gillen

could end not becomes like a on programs with that's on generally see we, course, the else, attention CR. anyone the expected. to to the are of margin do think supply impacted, government don't longer, government. impacted other if like And I think that's we help into paying issue. are it right. we're government on short Yes, is If And I markets everyone pending part you it that be Right. the could rely but The area we, workers

you can X the Those on the depending little areas bit could you of length see choppiness be there. will issue. that some impact see a As the

Operator

Michael's for Truist. Michael our was next Ciarmoli with come moment from That of the will that question. line line. Yes. One And

So speakers, you closing at no the any back questions turn further queue I'll I'm this showing in to time. over it for remarks.

John Holmes

very and I Thank everybody an In We you. Thank the the has looking AAR forward And happy you everybody. being the time hope interest, Great. to quarter really more. to time it's a appreciate much. next back at meantime, here talk holiday and season. exciting

Operator

you concludes for participating. all Thank This program. today's

disconnect. now may You

AAR (AIR) 21 Dec 232024 Q2 Earnings call transcript