• Second quarter sales of $545 million, up 16% over the prior year
• Second quarter GAAP diluted earnings per share from continuing operations of $0.67, compared to $0.64 in Q2 FY2023
• Record second quarter adjusted diluted earnings per share from continuing operations of $0.81, up 17% from $0.69 in Q2 FY2023
• Second quarter cash flow provided by operating activities from continuing operations of $17 million
• Announced highly strategic agreement to acquire Triumph Group’s Product Support business for $725 million

WOOD DALE, Ill., Dec. 21, 2023 (GLOBE NEWSWIRE) -- AAR CORP. (NYSE: AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, today reported second quarter fiscal year 2024 consolidated sales of $545.4 million and income from continuing operations of $23.8 million, or $0.67 per diluted share. For the second quarter of the prior year, the Company reported sales of $469.8 million and income from continuing operations of $22.5 million, or $0.64 per diluted share. Our adjusted diluted earnings per share from continuing operations in the second quarter of fiscal year 2024 were $0.81, compared to $0.69 in the second quarter of the prior year.

Consolidated second quarter sales increased 16% over the prior year quarter. Our consolidated sales to commercial customers increased 24% over the prior year quarter, primarily due to strong demand for our new and used parts offerings, while our consolidated sales to government customers increased 1%. Sales to commercial customers were 71% of consolidated sales, compared to 66% in the prior year quarter.

“We drove another quarter of double-digit sales growth in our commercial business with strong USM and new parts distribution volumes in our Parts Supply segment. Additionally, the recovery in global flight hours led to growth in our Integrated Solutions segment. Demand for MRO services continued to be strong and our hangars remained largely full throughout the quarter,” said John M. Holmes, Chairman, President and Chief Executive Officer of AAR CORP.

Gross profit margins were 19.0% in the current quarter, compared to 18.3% in the prior year quarter. Adjusted gross profit margin increased from 18.8% in the prior year quarter to 19.0% in the current quarter, primarily due to the favorable impact of our operating efficiency on increased sales volumes.  

Selling, general, and administrative expenses were $65.7 million in the current quarter, which included $3.1 million related to acquisition and amortization expenses and $2.6 million related to investigation costs. As a percentage of sales, selling, general, and administrative expenses were 12.0% in the current quarter, compared to 11.2% in the prior year quarter. Excluding acquisition and amortization expenses and investigation costs, selling, general, and administrative expenses as a percent of sales remained consistent at 11.0% of sales in the current and prior year quarters.

Operating margins were 7.0% in the current quarter, compared to 6.9% in the prior year quarter. Adjusted operating margin increased from 7.6% in the prior year quarter to 8.1% in the current year quarter, primarily as a result of the growth in commercial sales. Sequentially, our adjusted operating margin increased from 7.3% to 8.1%, driven by improved profitability in our airframe maintenance facilities.

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

• Extension and expansion of our airframe MRO services agreement with Alaska Airlines, including the corresponding anticipated construction of a new hangar at our Will Rogers World Airport location in Oklahoma City
• Multi-year contract extension with MTU Maintenance, the global market leader in customized solutions for aero engines, to supply parts for Pratt & Whitney PW2000 engines
• New multi-year distribution agreement to supply Woodward’s fuel control products to the Defense Logistics Agency under our Supplier Capabilities Contract (Captains of Industry)
• New multi-year Airinmar services agreement with Turkish-based low-cost carrier Pegasus for warranty support services

Holmes continued, “We delivered our 11^th straight quarter of operating margin expansion as a result of our improved operating leverage and the favorable contribution from our Trax acquisition. Additionally, we are proud to have secured multiple new business wins across our segments as the demand for our services remains extremely strong.”

Net interest expense for the quarter was $5.6 million, compared to $2.0 million last year. Average diluted share count increased from 34.7 million shares in the prior year quarter to 35.3 million shares in the current year quarter. We have not repurchased any shares during fiscal year 2024 as a result of deploying capital towards other attractive investment opportunities. 

Cash flow provided by operating activities from continuing operations was $17.4 million during the current quarter with no change in the amount outstanding under our accounts receivable financing program during the quarter. As of November 30, 2023, our net debt was $211.9 million and our net leverage was 1.01x.

Holmes concluded, “Finally, we were excited to announce our agreement to acquire Triumph Group’s Product Support business this morning.  This highly strategic transaction is expected to meaningfully improve our operating margins and consistent with and accelerates our stated strategy to add differentiated capability to our aviation services offerings.”

Conference call information 

On Thursday, December 21, 2023, 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 call can be accessed by registering at https://register.vevent.com/register/BIe408558c6b344fb2aca2a3d5d43d47f9. 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/3ot7y4ra 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 | dylan.wolin@aarcorp.com

Adjusted income from continuing operations, adjusted diluted earnings per share from continuing operations, adjusted cost of sales, adjusted gross profit margin, adjusted operating margin, adjusted cash provided by (used in) operating activities from continuing operations, 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, 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:

^{(a) Calculation uses estimated statutory tax rates on non-GAAP adjustments except for the tax effect of the pension settlement charge, which includes income taxes previously recognized in accumulated other comprehensive loss.}

^{(b) Calculation uses estimated statutory tax rates on non-GAAP adjustments except for the tax effect of the pension settlement charge, which includes income taxes previously recognized in accumulated other comprehensive loss.}