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, Illinois, March 21, 2024 — 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.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995, which reflect management’s expectations about future conditions, including but not limited to future financial condition, future results of operations, future cash flows, expected activities and benefits under services, supply and distribution agreements, our ability to continue to deploy capital to fund further growth and margin expansion, and the acquisition of the Product Support business (the “Triumph Group Product Support business”) of Triumph Group, Inc., a Delaware corporation (“Triumph Group”).

Forward-looking statements often address our expected future operating and financial performance and financial condition, or sustainability targets, goals, commitments, and other business plans, and often may also be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms.

These forward-looking statements are based on the beliefs of Company management, as well as assumptions and estimates based on information available to the Company as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: (i) factors that adversely affect the commercial aviation industry; (ii) the impact of pandemics and other disease outbreaks, such as COVID-19, and similar public health threats on air travel, worldwide commercial activity and our and our customers’ ability to source parts and components; (iii) a reduction in the level of sales to the branches, agencies and departments of the U.S. government and their contractors; (iv) cost overruns and losses on fixed-price contracts; (v) nonperformance by subcontractors or suppliers; (vi) changes in or non-compliance with laws and regulations that may affect certain of our aviation and government and defense related activities that are subject to licensing, certification and other regulatory requirements imposed by the FAA, the U.S. State Department and other regulatory agencies, both domestic and foreign; (vii) a reduction in outsourcing of maintenance activity by airlines; (viii) a shortage of the skilled personnel on whom we depend to operate our business, or work stoppages; (ix) competition from other companies, including original equipment manufacturers, some of which have greater financial resources than we do; (x) financial and operational risks arising as a result of operating internationally; (xi) inability to integrate acquisitions effectively and execute our operational and financial plan related to the acquisitions, including the acquisitions of Trax USA Corp. (“Trax”) and the Triumph Group Product Support business; (xii) failure to realize the anticipated benefits of the acquisitions of Trax and the Triumph Group Product Support business; (xiii) inability to recover our costs due to fluctuations in market values for aviation products and equipment caused by various factors, including reductions in air travel, airline bankruptcies, consolidations and fleet reductions; (xiv) asset impairment charges we may be required to recognize to reflect the non-recoverability of our assets or lowered expectations regarding businesses we have acquired; (xv) threats to our systems technology from equipment failures, cyber or other security threats or other disruptions; (xvi) a need to make significant capital expenditures to keep pace with technological developments in our industry; (xvii) a need to reduce the carrying value of our assets; (xviii) inability to fully execute our stock repurchase program and return capital to our stockholders; (xix) restrictions on paying, or failure to maintain or pay dividends; (xx) limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; (xxi) non-compliance with restrictive and financial covenants contained in certain of our loan agreements; (xxii) non-compliance with laws and regulations relating to the formation, administration and performance of our U.S. government contracts; (xxiii) exposure to product liability and property claims that may be in excess of our liability insurance coverage; (xxiv) the impact of adverse incidents involving, or adverse publicity concerning, our business or the aviation industry generally, which could harm our reputation and results of operations; (xxv) decreased demand for our services due to mandatory groundings of aircraft; (xxvi) impacts from stakeholder and market focus on environmental, social and governance matters; and (xxvii) the costs of compliance, and liability for non-compliance, with environmental regulations, including future requirements regarding climate change and environmental, social and governance matters.  Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.  Those events and uncertainties are difficult or impossible to predict accurately and many are beyond our control.

For a discussion of these and other risks and uncertainties, refer to our Annual Report on Form 10-K, Part I, “Item 1A, Risk Factors” and our other filings from time to time with the U.S Securities and Exchange Commission.  These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company’s control.  The risks described in these reports are not the only risks we face, as additional risks and uncertainties are not currently known or foreseeable or impossible to predict accurately or risks that are beyond the Company’s control or deemed immaterial may materially adversely affect our business, financial condition or results of operations in future periods. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Contact
Dylan Wolin
Vice President, Strategic & Corporate Development and Treasurer
+1-630-227-2017
dylan.wolin@aarcorp.com

Download full earnings release, including financial statements and tables.