AAR reports third quarter fiscal year 2024 results

• Record third quarter sales of $567 million, up 9% over the prior year
• Third quarter GAAP diluted earnings per share from continuing operations of $0.39, compared to $0.62 in Q3 FY2023
• Record third quarter adjusted diluted earnings per share from continuing operations of $0.85, up 13% from $0.75 in Q3 FY2023
• Third quarter cash flow provided by operating activities from continuing operations of $20 million
• Closed on the acquisition of Triumph Group's Product Support business for $725 million

WOOD DALE, Ill., March 21, 2024 /PRNewswire/ -- AAR CORP. (NYSE:AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, today reported third quarter fiscal year 2024 consolidated sales of $567.3 million and income from continuing operations of $14.0 million, or $0.39 per diluted share. For the third quarter of the prior year, the Company reported sales of $521.1 million and income from continuing operations of $21.8 million, or $0.62 per diluted share. Our adjusted diluted earnings per share from continuing operations in the third quarter of fiscal year 2024 were $0.85, compared to $0.75 in the third quarter of the prior year.

Consolidated third quarter sales increased 9% over the prior year quarter. Our consolidated sales to commercial customers increased 18% over the prior year quarter, primarily due to strong demand for our Parts Supply offerings, MRO services, and increased volumes in our commercial programs activities while our sales to government customers decreased 7%. Sales to commercial customers were 70% of consolidated sales, compared to 65% in the prior year quarter.

On March 1, 2024, we completed the acquisition of Triumph Group's Product Support business for $725 million, which was financed using the proceeds from our issuance of $550 million of 6.75% Senior Notes due 2029 and borrowings from our Amended Revolving Credit Facility, which was upsized from $620 million to $825 million.   The acquisition of the Product Support business scales our repair capabilities, expands our footprint in the Asia-Pacific region and adds more than 700 talented team members.

"During the quarter, we drove 18% sales growth in our commercial business capitalizing on the continued strong demand for both our parts supply activities and MRO services. We expect commercial demand to remain elevated as the life and high utilization of current generation aircraft continue to extend," said John M. Holmes, Chairman, President and Chief Executive Officer of AAR CORP.

Gross profit margin increased from 18.1% in the prior year quarter to 19.4% in the current quarter, primarily due to the favorable impact of our operating efficiency on increased sales volumes. 

Selling, general, and administrative expenses were $77.0 million in the current quarter, which included $12.2 million related to acquisition and amortization expenses and $2.0 million related to investigation costs. 

Operating margins were 5.8% in the current quarter, compared to 6.5% in the prior year quarter. Adjusted operating margin increased from 7.6% in the prior year quarter to 8.3% in the current year quarter, primarily as a result of the growth in commercial sales. Sequentially, our adjusted operating margin increased from 8.1% to 8.3%, driven by improved profitability in our Parts Supply and Repair & Engineering segments.

During and subsequent to the quarter, we announced multiple new contract awards, including:

• Multi-year contract extension and expansion for flight-hour component support services with ASL Airlines
• Agreements with Singapore Airlines and Archer Aviation to provide Trax's software solutions
• New multi-year distribution agreement with Ontic to supply a strategic selection of military products to the U.S. government
• Multi-year extension with Philippine Airlines for Airinmar's full suite of support services covering both aircraft warranty and value engineering
• Multi-year agreement with Cebu Pacific to supply CFM56-5B engine surplus material

Holmes continued, "We have expanded our operating margins every quarter for the last three years and our adjusted operating margins are now 50% higher than they were before COVID. We are especially proud to have made this progress in an inflationary environment where labor costs, in particular, have been rising. We believe as we grow our business and integrate the Product Support acquisition, our margins will continue to expand."

Net interest expense for the quarter was $11.3 million, compared to $3.5 million last year. Net interest expense in the current period included $6.1 million related to bridge financing costs for the acquisition of the Product Support business.  Average diluted share count increased from 34.6 million shares in the prior year quarter to 35.2 million shares in the current year quarter. We repurchased 0.1 million shares for $5.1 million during the current year quarter and have $52.5 million remaining on our $150 million share repurchase program.  From a capital deployment perspective, we are prioritizing debt repayment but will evaluate share repurchases along with other attractive investment opportunities to deploy our capital. 

Cash flow provided by operating activities from continuing operations was $20.4 million during the current quarter. As of February 29, 2024, our net debt was $207.8 million and our net leverage was 0.95x.  

Holmes concluded, "I am exceptionally proud of the results our team continues to deliver, and we expect the acquisition of the Product Support business to accelerate our growth trajectory.  We will leverage our leadership positions in used serviceable material (USM), new parts distribution, airframe MRO and now, with Product Support, component repair services to drive even greater value for our customers and shareholders.  Additionally, we will maintain our focus on cash generation and portfolio optimization to ensure we maintain a strong balance sheet to enable both organic and inorganic investments."

Conference call information 

On Thursday, March 21, 2024, at 3:45 p.m. Central time, AAR will hold a conference call to discuss the results. The conference call can be accessed by registering at https://register.vevent.com/register/BIdf08c4f6d49042bebbb16a2c5934bf64. Once registered, participants will receive a dial-in number and a unique PIN that will allow them to access the call.

A replay of the conference call will be available for on-demand listening shortly after the completion of the call at https://edge.media-server.com/mmc/p/rab3gbzx and will remain available for approximately one year.

About AAR

AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services. Additional information can be found at aarcorp.com.

Contact: Dylan Wolin – Vice President, Strategic & Corporate Development and Treasurer | +1-630-227-2017 | [email protected]

 

 

 

 

 

 

Adjusted income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted operating margin, adjusted cash provided by (used in) operating activities, adjusted EBITDA, net debt, and net debt to adjusted EBITDA (net leverage) are "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We believe these non-GAAP financial measures are relevant and useful for investors as they illustrate our core operating performance, cash flows and leverage unaffected by the impact of certain items that management does not believe are indicative of our ongoing and core operating activities. When reviewed in conjunction with our GAAP results and the accompanying reconciliations, we believe these non-GAAP financial measures provide additional information that is useful to gain an understanding of the factors and trends affecting our business and provide a means by which to compare our operating performance and leverage against that of other companies in the industries we compete.  These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. 

Our non-GAAP financial measures reflect adjustments for certain items including, but not limited to, the following:

• Investigation and remediation compliance costs comprised of legal and professional fees related to addressing potential violations of the U.S. Foreign Corrupt Practices Act, which we self-reported to the U.S. Department of Justice and other agencies.
• Contract termination/restructuring costs comprised of gains and losses that are recognized at the time of modifying, terminating, or restructuring certain customer and vendor contracts, including forward loss provisions on long-term contracts.
• Customer bankruptcy and credit charges (recoveries) reflecting the impact of bankruptcies and other credit charges primarily resulting from the significant impact of the COVID-19 pandemic on the commercial aviation industry.
• Losses related to the sale and exit from our Composites manufacturing business, including legal fees for the performance guarantee associated with the Composites' A220 aircraft contract.
• Expenses associated with recent acquisition activity including professional fees for legal, due diligence, and other acquisition activities, bridge financing fees, intangible asset amortization, and compensation expense related to contingent consideration and retention agreements.
• Pension settlement charges associated with the settlement and termination of our frozen defined benefit pension plan.
• Legal judgments related to or impacted by the Russian/Ukraine conflict.

Adjusted EBITDA is income from continuing operations before interest income (expense), other income (expense), income taxes, depreciation and amortization, stock-based compensation, and items of an unusual nature including but not limited to business divestitures and acquisitions, workforce actions, COVID-related subsidies and costs, impairment and exit charges, facility consolidation and repositioning costs, investigation and remediation compliance costs, equity investment gains and losses, pension settlement charges, legal judgments, acquisition and amortization expenses from recent acquisition activity, and significant customer events such as early terminations, contract restructurings, forward loss provisions, and bankruptcies.

Pursuant to the requirements of Regulation G of the Exchange Act, we are providing the following tables that reconcile the above-mentioned non-GAAP financial measures to the most directly comparable GAAP financial measures:

 

 

 

 

 

 

 

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SOURCE AAR CORP.