AIR - Earnings call transcript Q1 2025

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Operator

Good afternoon, everyone, and welcome to AAR's Fiscal 2025 First 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'd 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. fiscal are Factors the annual section Form for uncertainties and earnings report and XX, XX-K Risk May the of the risks discussed company's in release on XXXX. These ended year the company's

comparable reconciliation In forth company's Chairman, call to like be of obligation would provide At the measures providing call and discussed GAAP or President after on-demand or in earnings updates in no non-GAAP website. the Certain of A release. Holmes. circumstances to unanticipated I AAR's completion this future will listening to the CEO, the events. the John A turn of reflect financial set conference assumes measures statements, the anticipated forward-looking the most for these company AAR's time, non-GAAP replay call to the information is on be call available today. this to shortly will over

John Holmes

and to joining thank for you everyone most Great. results. our Thank quarter's discuss you, to afternoon this us recent

are solid A, our fiscal and a continuing our deliver. first for was we strategic XXXX. advanced well year, This proud quarter very delivered during team of continue We to I'm grateful to of the to and to the the initiatives execute across our start performance very company.

from aftermarket services. of We air which our for travel structural levels benefiting tailwinds, elevated fleet, are demand and an drives aging

parts supply, Engineering more than X and focused operating ever Repair is company segments: Integrated our Our Solutions. within and main

efficiency We deliver are to higher X segments drive growth, making in and improve our these investments each of margins.

fiscal investments quarter, XXXX. expect to our throughout from this benefit we these that saw and You continue the

of quarterly driven XX% in year-over-year, of by million, first quarter segments. With that, I up turn will results. $XXX our We each growth delivered our sales to

XX%. growth had commercial government growing in each with at we both and Additionally, businesses our

activities product quarter. TRAX particularly meaningful strong Our acquisitions were hangar distribution support and this our and recent and performance also had of contributors

margin we once demonstrated significant I expansion. profitability, again, am pleased that Regarding operating

and year-over-year from largest of Supply as points used and sales. to I'm opportunity This represents a from Parts each USM. segment for very our of detail basis Product organic well acquisition. and XXX go or and distribution approximately the result TRAX nearly by continued increased margins X most the these consolidated is we contribution was X.X%. the serviceable X.X% parts for contains more supply and main parts going have into little material sales. as our and segments. operating segment XX% growth. of in results where activities, profitable adjusted XX% USM Our now Support to organic expansion new XX% XX% Distribution consolidated significant of parts X supply of represents This of margin

continued and distribution, largest our ahead our In new the and status our conflicts organically, share in advantage, is types. of independent a continued OEM gains, gains. distributor we which independent commercial We us runway a both have is aircraft recovery allows eliminates pipeline driven market from and market sales of a partners we We're all share strong believe strategic to behind benefited demand opportunities. grew key driver XX% strength OEM volumes. we serve a government long of parts as have by and our consistent This key parts

new deliveries, available supply, in asset retirements. lack in greater in current delay have the of resulted parts of use challenges For of new the is of a resulted lower which with platforms continued year-over-year decrease assets, whole The the the engine USM has the existing ongoing the the aftermarket, dynamics aviation fleet, sales whole in aircraft activity a in driven by in a within sales result engines entirely we saw market. decline predominantly

over available. for this good We demand. which time, there's increase supply means will that it to of service aircraft less USM retirements USM specifically, overall, that supply the more in AAR, is do While anticipate

repair Sales quarter. was engineering. Turning in and the XX% growth to

footprint both increased and with said, for was hangar acquisition, remain X% continue That are product the inside City and we in Even throughput. continue our Miami sales expansions existing of see largely on to support services. the calendar our as at Excluding to for strong we capacity, though grow hangers our efficiency XXXX. improved track beginning in growth our of underlying MRO operation Oklahoma half capacity second demand

reminder, will these add annual of expansions $XX As approximately a million sales.

exceeded Support quarters, we expectations initial Product the has additional Triumph the value. unlocking Regarding are significant in and first the stages the of our X acquisition, in business early

on confident we are of complete synergy, announced the facility consolidation number Grand Wellington, million once In exceed once this previously target the we Texas -- and consolidation of our terms our $XX of the of Island will into Long Kansas. track to existing we achieve in Prairie, are facilities cost complete and the

progress in-sourcing make commercial to continue of repair work programs on we activities. Additionally, in and USM support our

Customer new are potential to win continue the remains new in which we offerings, significant government in business our sales and to expand growth share had customers our of market implementations. both TRAX quarter, strong some offering particularly for drove segment. with existing about Integrated customer with commercial to quarter interest In growth TRAX's excited wins and services Turning across with customers. the resulted this we X% strong, and a total Solutions. and

as with programs. existing X well. activities perform PX had IDIQ on strong airframe contract we is the quarter had their to the award awarded wins maintenance fixed price business were Subsequent firm Our We continuation X-year government significant This a quarter, in to in fleet. work. program Navy of a Integrated Solutions government a

demonstrate the the value aircraft on proposition contract brings new fleet. Navy customers. wins a engine the AAR maintenance won that its to also government These PX significant same for the support to We

quarter the we turn Sean. that I'll of And delivered. over proud incredibly I'm that, Overall, with just to it

Sean Gillen

grew Thanks, John. the in XX% to million. quarter $XXX Total sales

our all segments. recently Excluding the quarter growth support of core sales acquired sales with the for organic X the Commercial was business, product XX% growth impact from X%. increased in

we on and expanded as lines Our in to sales XX% were newly commercial distribution particular growth lines product product also increased experienced won sales improvement from a well. Government growth standout sales drive as increase existing fourth an the we was from The XX%, continue parts an program improved order ongoing basis new activities X.X%. to distribution profit our points our government and recovery XXX the across activities. increased margin sales by and Adjusted volume quarter. for X.X% driven operating

Adjusted points XXX from basis EBITDA to margin increased XX.X%. X.X%

we map shift recently in We have clear mix margin medium acquired synergies segments, the the term product realized our support road a our for improvement over continued towards and higher-margin business. as

to as expense further out the our the roll approximately expect interest projects QX quarter as share $XX.X expect capacity improvement and quarter improvement initiatives million, and shares. diluted was reflecting the expense of continue Support in margin We Average acquisition, was come the expansion maintenance QX. airframe Product count financing Net interest the be same for efficiency we to XX.X online. million

to diluted margin we our For XX%. earnings effective tax the $X.XX rate increased continue accretive was expansion. for benefit Support expect be Adjusted approximately acquisition The we the quarter, to expect to from growth through FY EPS continue 'XX. reflecting our Product and to $X.XX, FY 'XX, of to which

XX% the by as continue we of growth X% ramp-up lines Power detailed results in U.S. turn in to well governments. foreign and and decline We With as double-digit both a by growth in to million, Growth in drove supply by new grew share. sales purchases segment. again XX% the USM. once to distribution gain the wins expansion that, both positively $XXX of distribution driven and product the as by greater existing market business quarter was the impacted I'll

XX.X% remains support component capabilities, basis of government whole of operating Repair of driven XXX strong activity efficiency an availability scale basis, benefited was the lack drive by contributed and due improvement the the our in to increased in by hangers. to margins growth from adjusted continued million. we activities. in engineering operating $XXX assets. by to points driven sales engineering The the these in to XX% to also for to down the X%. sales increase to distribution, product increased and increased USM basis increased Repair maintenance heavy On and quarter, mix. customers sales points to impact quarter, and distribution Our adjusted Supply margins. margins and inorganic and Part repair of by which XXX organic gains XX.X% continue look in Demand

segment initiatives and hanger in expect Integrated further come Going expansion drive from we of activities, paperless Solutions to margin power-by-the-hour programs ], commercial and they by capacity 'XX. online once to growth realization the driven product our this expansions from X% certain sales in [ forward, the million rollout of TRAX. synergies, FY $XXX government increased in support

talent, generation talents. margin to our as customer Expeditionary adjusted basis operating by the contract mix revert Services, within decreased in based the provide government Integrated X.X% quarter next-generation points decided to result, a has XX the to government to programs. current In on our terminated Solutions and

are demand for and incumbent as to next-generation RFP for government's due generation Expeditionary current government's will these not to new the on in the do Services expect a products talent. the any for we potential We the We change material the await outlook talents support continue the decision.

in termination from quarter, adjusted we recognized are of the of and million to excluded $X.X which results. a loss the related However, our million, $X.X revenue net

to net used to cash flow maintained in pro forma adjusted quarter in Despite X.Xx as the this EBITDA. in support Cash the particularly net was growth in cash. made of consolidated the leverage to we million debt we inventory activities in Turning business, a investments operating distribution. $XX use,

For in year, expect growth net we well the EBITDA balance as the both in as to reduce reduction through leverage of fiscal net debt.

make capital flexibility and decisions and sufficient our sheet business us affords balance shareholder to structure that maximize Our value. manage

over turn back will With to I the that, John. call

John Holmes

the exceptionally Great. our services Demand in supply overall with Thank pleased chain dynamics the QX to fiscal in you, favor. and current remains our results in strong Sean. we are our and strong, for I'm year. Aviation that very delivered the the start

to QX Looking which sales QX, similar operating XXXX adjusted XX% to to expect we of was and X.X%. XX% fiscal of growth margin specifically,

executing progress tremendous objectives. make to continue our long-term towards We

the are driving efficiency gain margins repair offering in track growing We distribution, capabilities. on and continue in to share capacity engineering through or and and software differentiated with investments market higher and track expansions

the positioned are I'm to we that markets, excited turn that, very strength We're over exceptionally it the I'll our for seeing our about well and questions. With in operator capitalize future. to on

Operator

[Operator Instructions]

line question with comes Mikus first Melius Scott Research. the of from Our

Unknown Analyst

ask to asset. Triumph wanted Product I John, the Support on

it with repairs. proprietary So came X,XXX DER

number the do wondering, growth add repairs that can annum? in simple the Or of thinking just an on how we to add number want DER about So I'm of a just growth to going you you be or should rate I that that? repairs think annual should per

John Holmes

with question accessories there the of majority an repairs. is and acquisition. I rather the that I types came trying that the the and focused What to repairs than on that of in focused important DER the has, areas that Great on broadening of quantify came that TPS. would are say are asset Triumph repaired say that components we other of to would X,XXX Triumph, And repair DER the are structures. capability

rather again, structures world. look growth would quantify type, from opportunity I so they've number than in we a the capture repairs, a the or rate of a And trying done what would say beyond product to that to

Unknown Analyst

I Okay. Got repair about it. the just hanger. And I'm engineering. and to thinking then stick also want with MRO

So is of capacity fall hire the new Miami I'm it Oklahoma up expansions and day time and ramp and do to on for wondering, will train, you City to to in hangers fill employees generate take X? profits? have that of those have sales Or workers those just XXXX, the the to pipeline but going you be ready

John Holmes

online. very We're it's baseload that knew question. up. into coming have excited hire where long-term we to would we We're markets to Yes. able excited we customer knew we And about went sold. a also your that capacity point be we would Great that and

are and a providers us. labor City local and Miami et each got cetera. had place. presence with favorable time markets both long So We've Oklahoma We've relationships schools, in for

in our feel talent ability locations. both so about And we good really recruit to

to ramp a will just each in though, a support we There ability facility, labor feel is. ramp-up relatively curve, there an There's a that the hire new our in up very always short but of business. to operational in bit be confident

Operator

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

Michael Ciarmoli

that I've the on mean, challenges year. about I and just how you how that's or to are of Boeing you what's mean, they potentially thinking John, how with it strike. forecasting imagine long that market get the on does -- the even Does aren't given a market just asset there. are whole I you? for presumably challenge. USM mean, airlines getting but sales kind to lasts, hard the I -- tell And got potentially obviously, guys needed. for planes going tighter

John Holmes

Yes.

So great question.

puts deliver are that of U.S. quarter. called the performed to And and were we despite we business, all, I growth USM happy we really the decline market, it's our of the in that's going like the we Boeing to say other business. on yes, strike saw point, really the company extend the First your of the And is to of fleet we in the out. going able XX-plus in existing more the demand the is XX% company. but would that for the rest XX% anything extend reasons robust that of to the that see more importantly, percent really, USM well, tightness that the one pressure

to -- we forecast. So thing is it a difficult

that do right availability, is seeing that or we the market retired benefiting are at capture that dynamics to strong in more that. for you will point a occur and result the tailwinds overall and company there still disassembled aircraft as in whole. we're assets, while described as asset right some these And position in the are demand that expect we're and But these and that the now, overall will

Michael Ciarmoli

that there masked it. maybe asset out kind underlying Is or way sales component versus to growth by maybe was of Got the any whole headwind the part that parse the of sales? USM piece or

John Holmes

highest just What fourth individual quarter the sales ended in sales second parts say we for The the the quarter piece USM. seen. had in was individual that I is we've Yes. highest Yes. parts ever ever we've was would quarter

would only assets are that there parts thing able The is I and situational, right? that now individual is are the It's material. to that very we So locate add market there other constrained. sales strong, very are whole right

there's break we I Airlines saw years with and job our what couple are and place they in things mean like focused loose, an a can quickly in American right a overall be at to capture not the become to you ago what to certain to assets fleet, exit we're available see the can time market, sure on of when move is that deciding doing. the you make we if right that's change able even and see

Michael Ciarmoli

seeing of as ROI talking you assets? mean, we're looking airline Got they here, what's operators planes. just it a it. to just like? it. service Or equipment, because you to environment limited not And there are the high yes, I need buy seeing actually to go Got an I are on Are maybe -- their very the level make mean ahead.

John Holmes

latter. predominantly it's Yes. the No,

You are seeing airlines -- they just need the lift.

the those available, now assets themselves become after are the the rates are assets favorable because lease lift. need airlines right demand or as so lessors And because because extremely airlines just going right there's this tremendous

Michael Ciarmoli

Got it.

John Holmes

go us. is The other mention time and is lot again for demand a going green these of those as means do require once, operation, that there engines to which they're parts, lot are in a environment that off point at in of a maintenance, once favorable for burning to you're

Michael Ciarmoli

Got it.

of you contract the can provide quarter. Of course. the Sure. termination $X.XX the the just adjustments were cost in At on in that there? on Any $X.XX? costs investigation Any one, Sean, detail color

Sean Gillen

item about opening investigation the quarters. contracts the past Services of on termination, investigation. further remarks same the talent the been Nothing items. Expeditionary for contract in the line And It's number then those I that the talked are the

Operator

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

Kenneth Herbert

I John It and is of work sounds been just in step and the terms John, wanted a like clarify the that doing, opportunity. of Sean, but maybe IDIQ then there to sort But PA. airframe second you've first the isn't Maybe, start of to engine Is a there there, continuation revenue much a you support? I importantly, up parts on doing of And a phases how this talk side? standpoint on sort more year, that from color the incremental exactly in? side, about more be that of can it are Or on little more you what maybe engine could how please? revenue wanted the

John Holmes

X Yes. I about Great. those appreciate you asking awards.

phase. So change the We what to that more that in submitted work fleet maintenance airframe today. the step proposal phase based continuation for wait the it's The volume of in saw schedule and is do we from a And one, But this yes, is that chance we of the award, contract we see secure out a for the heavy the previous there first volume that time. do a that on of volumes a to over said, got the in than possible could up you Navy. next get award see we there. that have

relates chain manage for it doing to is the provide award entirely and As the is be to that engine what we parts. supply business and will new helping AAR,

will will we a have that then supply partner government the information, rents and working the that engine parts We releases in out overhauls. overall that That of partner once be the partner but flow to be actually engine will manage doing support the to turning. more come

Kenneth Herbert

quantify the you that parts supply Can engine, contract could of part the provide year? growth much maybe yet this how

John Holmes

revenue government terms get starts, contract, et and there's nice we'll obviously, a contributor. more But that. data we income, in to process, meaningful to the we feel we be it But a a of and cetera. we the on when Once do full like contributor on on it if in will terms it will do of see be clarity got from be feel give able our position

Kenneth Herbert

is sort as of margins opportunity about efficiencies even and drive mix and is 'XX. into cadence opportunity supply USM? think higher on to maybe Okay. to fiscal until you think quarter, this a progression meaningful business, how nice we Great. really Parts more look margins about pronounced whole the And step-up do can there? the through we Or continue year held at Supply more of through we the I as this see asset within incrementally there an mean back parts

John Holmes

Sure.

material. situational material acquire able the on that For we and availability and to at price which USM, are of again, dependent it's the sell and somewhat

just distribution base. do is with to that parts What because what leverage market. our And parts strength in see our so cost a continued new out able each are exclusive we business. would you continue normally The distribution moves to model better we're fixed margins there than of the our new with see win, of business. distribution And

on, say, on would and steady we margin from I in in say, a see the a over basis time, So supply the we situational would of on based see basis then opportunities coming distribution growth improvement the parts more and USM. I

Kenneth Herbert

of growth the incremental some sort few there sounds Okay. situations. from Helpful. you're fiscal And more your seeing idiosyncratic calendar customers was airline it what of schedules, you you as backlogs, specifically your demand your And then, airlines. and low-cost fourth just finally, of by coming like spending -- a 'XX airline of and capacity that macro standpoint of guess, a sort back terms But some just first of out some was changes spending around concern spending any into quarter, to sort comment and the more in year calendar part of think the into 'XX. and in can specific predominantly on of half about I airlines

John Holmes

the I'd -- some recognize continuing our from and lower they that seen larger the are yes, see customers, very the And to demand signals, that sure. certain so point, However, the ones carriers, of softness carriers, they again, have well, value for and say proposition. certain we not are that long-haul great continued are those major are do our largest your strong very customers ones question. cost of to major Those customers Sure, the customers, carriers. they AAR, are

rest a express been largest there's just But I decline of our are our over demand they their have parts say, if this year. a would own in where to throughout volumes. We strong fiscal have broadly, our in of continuing competitors maintenance that even customers favored position definitely our solutions the solutions,

Operator

the comes line Our Louis of Blair. William Dipalma next with from question

Unknown Analyst

talk activity track a viable and you about and expect your Can the pipeline business? you business tax with channel when for do that development sales become can parts

John Holmes

their nice announce to customers and made about things were they're TRAX. of results good ways. by new nice quarter Not of couple customer, in in capture the but a for Yes. existing they customer were a TRAX. for asking these the upgraded contribution actually Thanks progress customers. able It some market. was a One, certain they able to of to really making all They

of that a turning that we system we One that big for doors have value acquire TRAX been over doors TRAX. business to bring not their larger them, the the may could ERP main to them open in was airlines comfortable market smaller ability to should company for their our like felt with reasons

of large thesis. are that validate very we'll that very coming We particularly be of TRAX, activity business quarters, hopeful that able the that to secure will play We're seeing with out. encouraged which And pipeline the acquisition we're by airlines. some in important element the with

we good that. So feel about

we've customers, deal But we good that done our around feel able the and improve very turn we'll AAR integration TRAX little done. operations what part between attention second priority your pipeline from about they made is year as your away very, larger of a we parts selling being of bit and early year, has there about. In a to question something first to TRAX support the acquisition, great TRAX Once to sales, our a been then the get parts. And of the that scale regard. of then strongly that we're in for our to so ultimately could to about progress still feel still we TRAX that

Unknown Analyst

ago, a Great. quarters on few still And TRAX.

and you new as mentioned Singapore Airlines companies, Aviation how those coming? are I implementations think Archer

John Holmes

that are suite another same from that that complete. customer offering to greatest publicly latest and and TRAX. implementation in of customers haven't time existing of They're significant We those is And is went and we live. running live. running That well up customer and announced upgraded another up period and and the live. There's

time. the TRAX One the at question, something and to were same they handle That's when for implementations difficult multiple prior be their focus main of was back do for of So is on again, to going able that us area to to own. your upgrades

the progress of to same in on many time. being made so things a And at lot able we've take

Unknown Analyst

the for PX on the of question Navy Great. the Ken's Navy, contracts. And following up pair

why take think contract, away services from is an that you protest? likelihood increased contract of you that engine And an the incumbent? a there's did For

John Holmes

say can't we a there but will the don't. -- and we be know incumbent, I or if process not, about I don't

So have to the incumbent. But process. an our open that were than we extent -- eye it you there as world, That's was why to in government that's just rather potential know, multiple very whether but the bidders always a common.

Unknown Analyst

are from And Force or out just the other engine many could there Definitely. there the for -- away different these Navy that Air general? types incumbents of either the or take platforms contracts you new work in

John Holmes

and Yes. well our derivative I all that it answer strongly would very very commercial just broadly we should feel offering military say commercial play for that aircraft.

to And what accessory that so it's we airframe really to in markets. the we're or whether maintenance support, repair component engine it port in do commercial or position think and the we government well markets a repair take

Michael Ciarmoli

this Sounds Sean. good. is John both for question. And one of Perhaps final and you,

still As take early it in can progress are the in-source Triumph relates and the we to repair integrating you Triumph USM Triumph, of can such for you or talk the work your support business? capabilities some innings about plans the USM, of that repair to the

John Holmes

Yes.

there. capability, on get it in and commercial has X work by government government facilities Dallas, because track, is our There's government. of commercial There's and and right The Wellington, of and The been approved New to we audited there's transferred. majority We work. on build takes the work. have buckets the in track York facility work work transfer couple different the longer have vectors terms to of we're the work a existing in Kansas of from there. One,

cut can that Both are Once of track. on absolutely over. those happens, the areas work we

that really for the is the today done. that We're you As as business. mentioned, USM X it of relates in-sourcing, main there. USM One business, buckets to largely work support can all just in-sourcing to we is

The to programs work longer-term there, Triumph than agreed we more work of I element that a actually modest to the see would supporting generally, amount with our in-source we commercial investment in when of that opportunity the we say do deal. is did business. And

because will to there it's that's the just control. opportunity work than more previously But see there. the encouraged we is So to thought. we longer see not commercial approve in we're got third-party a work work ultimately It customer support that programs headline everything. very doing in-source that opportunity by we're It's we we of take

Operator

Research. of with a question from line We have Scott Melius follow-up the Mikus

Unknown Analyst

business? I just you distribution have one rates growth quick have just a commercial Sean. new the for within the for and do Sean, defense parts

Sean Gillen

my in you fingertips. Yes, past over this mean quarters? the just several for or quarter Not

Unknown Analyst

I mean if have not, offline. quarter, we follow you it, just for this can if up

Sean Gillen

Yes, the information. up. will which I'll some of filed follow later Q be then And I'll that have

So we up can after follow that.

Operator

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

Kenneth Herbert

in terms much just should guess, full Or should how fiscal I similar of 'XX? now second think fiscal of EBITDA? year cash operations another cash free had follow-up. bigger And were cash just Last you of picture, nicely Sean improvement to the in the of of sort you how quick you rest to maybe the Maybe cash through cadence relative positive sort quarter, this year, generation. cash relative we year and but in a of of quarter similar then the sort of in burn maybe first free about terms from expect Do an we year. a expect starting generation,

John Holmes

Yes.

businesses the fiscal supply cash expect balance I to of grow a in from that similar relates net specifically. So the of capital, timing cadence balance and will parts expect user the QX continue we seasonality cash with to I would for a as year, of then as flows. terms generation, just be of the the cash of QX And would year it flow some inventory of

is use and AR, your a terms my interest number run from quarter In then of pretty the DSO on think think the debt of in when And that year, as reduction borrowings. to on opening on rate then for sales this mentioned down, that you growth with And well the I standpoint, revolver a would both consistent on we call good net or remarks, in sessions. come the bit should can expense, we back that little keep half use. CapEx you be average QX. relief to about the interest a similar the rate as expense of probably a

Unknown Analyst

Okay.

to full capital maybe of in over up year cash free year, the well. this last maybe the year like cash generation free a continue as but similar to So going headwind terms sounds to is be working sort it growth, of

John Holmes

net still a year. overall Yes, of year capital with up over cash cash consumer last being but flow higher last than net working

Operator

turn at back Ladies for management and would the this time, remarks. I like closing to to gentlemen, over call

John Holmes

to Thank you about QX. forward much. and support, appreciate look the you. all Thank to Great. really and interest very the we time and talk in being here January We the back

Operator

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

now may You disconnect.

AAR (AIR) 23 Sep 242025 Q1 Earnings call transcript