AAR CORP Q1 FY2025 earnings call

• Advanced strategic initiatives executed well across the company. - Quarterly sales were $662 million, up 20% y-o-y, driven by growth in all segments. - Adjusted operating margins increased 180 basis points to 9.1% due to organic expansion and acquisitions. - Investments in segments to drive growth, efficiency, and margins. - Acquisitions of Trax and Product Support contributed to results. - Repair and engineering capacity expansions in Miami and Oklahoma City set to begin in H2 2025. - Triumph Product Support acquisition exceeded initial expectations, on track for $10 million cost synergies.

Part supply: Sales were $250 million, up 5%. Distribution (nearly 60% of parts supply, 22% of consolidated sales) grew 26% organically due to market share gains and demand from commercial and government. USM (40% of parts supply, 15% of consolidated sales) declined 22% due to lack of whole assets. Repair and engineering: Sales reached $218 million, up 58%. Excluding the Product Support acquisition, organic growth was 6%. Margins increased 460 basis points to 11.2% driven by Product Support synergies and efficiency. Capacity expansions in Miami and Oklahoma City are on track. Integrated solutions: Sales were $169 million, up 8%. Impacted by government program mix, with expeditionary services contract terminated but no material impact expected.

• Expect Q2 fiscal 2025 sales growth of 18%-22%. - Adjusted operating margins to be similar to Q1's 9.1%. - Continued progress on strategic initiatives, including market share growth in distribution, capacity expansions, and Trax growth.

• Government contract termination in expeditionary services, but no material impact expected. - Potential protests on government contracts. - Market dynamics affecting USM availability due to aircraft usage and fleet retirement delays.

Q: Scott Mikus asked about Triumph Product Support's DER repairs growth.

A: Focus on broadening DER repair capability beyond structures.

Q: Scott Mikus asked about repair and engineering hangar capacity and workers.

A: Favorable labor markets, confident in ramping up.

Q: Michael Ciarmoli asked about USM whole asset sales forecast.

A: Tight market due to aircraft usage, but expecting more asset availability eventually.

Q: Michael Ciarmoli asked about component sales in USM.

A: Individual part sales strong, whole assets constrained.

Q: Michael Ciarmoli asked about investigation and contract termination costs.

A: Investigation costs ongoing, contract termination related to expeditionary services.

Q: Kenneth Herbert asked about P-8 contracts and engine revenue.

A: Airframe IDIQ continuation, engine award new business, expecting contribution.

Q: Kenneth Herbert asked about part supply margin progression.

A: Distribution growth driving margin, USM situational.

Q: Kenneth Herbert asked about airline spending macro.

A: Largest customers continuing strong demand.

Q: Louie DiPalma asked about Trax business development.

A: Trax making progress, integration with parts sales to come.

Q: Louie DiPalma asked about Navy engine contracts.

A: Positioned to port commercial expertise to government.

Q: Louie DiPalma asked about Triumph in-sourcing repair work.

A: On track with work transfer, insourcing for USM and commercial programs.

Q: Scott Mikus asked about new parts distribution growth rates.

A: Will follow up with Q filing.

Q: Kenneth Herbert asked about cash generation cadence.

A: Similar cadence, inventory a net user, interest expense similar, cash up from last year.