AAR reports third quarter fiscal year 2025 results
THIRD QUARTER FISCAL YEAR 2025 HIGHLIGHTS
(As compared to Q3 FY2024)
-
Sales of
$678 million ; increased 20% -
GAAP EPS of
$(0.25) -
Adjusted diluted EPS of
$0.99 ; increased 16% -
GAAP Net loss of
$9 million -
Adjusted EBITDA of
$81 million ; increased 39% - Adjusted EBITDA margin increased to 12.0% from 10.3%
MANAGEMENT COMMENTARY
"We delivered another strong quarter of significant year-over-year sales and earnings growth," said
Holmes continued, "We are particularly proud of the progress on EBITDA margin which expanded from 10.3% to 12.0% year-over-year. In addition to contributions from our Product Support acquisition, our internal initiatives to drive efficiency improvements continue to produce meaningful results. We are focused on further increasing our margins as we fully integrate the Product Support acquisition and drive additional efficiencies throughout the Company."
"Subsequent to the quarter, we announced several new business wins, including signing an exclusive agreement with Chromalloy to distribute their BELAC PW4000 PMA parts. We also added distribution support for select Unison parts under our Supplier Capabilities Contract with
RECENT UPDATES
NEW BUSINESS
- Multi-year exclusive agreement with Unison to distribute select parts under AAR's Supplier Capabilities Contract with
Defense Logistics Agency (DLA). - Multi-year exclusive agreement with Chromalloy to distribute Parts Manufacturer Approval (PMA) turbine blades for the PW4000 engine through their wholly owned subsidiary,
BELAC, LLC . - Multi-year agreement with
Cebu Pacific Air for CFM56 engine nacelle maintenance, repair and overhaul services for the airline's A320 fleet. - Multi-year license agreement with
Cathay Pacific for Trax software.
PORTFOLIO UPDATE
- Expected timing of the sale of our Landing Gear Overhaul business for
$51 million is set for the fourth quarter of fiscal year 2025. The divestiture is part of the Company's strategy to optimize its portfolio.
THIRD QUARTER FISCAL YEAR 2025 RESULTS
Consolidated third quarter sales increased 20% to
Third quarter results include a pre-tax charge of
Selling, general, and administrative expenses were
Operating margins were 10.5% in the quarter, compared to 5.8% in the prior year quarter. Adjusted operating margin increased to 9.7% in the current year quarter from 8.3% in the prior year quarter, primarily as a result of growth in Repair & Engineering. Sequentially, our adjusted operating margin increased from 9.2% to 9.7%, driven by improved profitability in Parts Supply as well as Trax and government-related services in
Net interest expense for the quarter was
Cash flow used in operating activities was
Holmes concluded, "We are proud of the sales growth and significant margin expansion we delivered this quarter. Demand for our services remains very high and we anticipate our sales growth to continue. Additionally, we expect further margin expansion through growth in new parts Distribution, Trax, Airframe MRO efficiencies and the realization of Product Support synergies. We have reduced our net leverage from 3.58x at the time of the Product Support acquisition to 3.06x one year later. We expect further deleveraging in our fourth quarter and throughout our fiscal year 2026. We believe our continued growth, margin expansion, and disciplined capital allocation will drive additional value to shareholders."
Conference call information
On
A replay of the conference call will be available for on-demand listening shortly after the completion of the call at the webcast link and will remain available for approximately one year.
The slides are also available on AAR's website at https://www.aarcorp.com/en/investors/events-and-presentations/.
About AAR
AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the
Contact:
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, continued demand in the commercial and government aviation markets, anticipated activities and benefits under extended, expanded and new services, supply and distribution agreements, contributions from our acquisitions, expected benefits from the pending sale of our Landing Gear Overhaul business, focus on process improvements and efficiencies, additional opportunities for margin expansion and portfolio optimization, continued sales growth, earnings performance, debt management, and capital allocation.
Forward-looking statements often address our expected future operating and financial performance and financial condition, or 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
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.
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Condensed consolidated statements of operations (In millions except per share data - unaudited) |
Three months ended February 28/29, |
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Nine months ended February 28/29, |
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2025 |
2024 |
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2025 |
2024 |
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Sales |
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Cost of sales |
546.5 |
|
457.0 |
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1,648.5 |
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1,347.4 |
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Gross profit |
131.7 |
|
110.3 |
|
377.5 |
|
315.0 |
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Provision for (Recovery of) credit losses |
(0.2) |
|
0.1 |
|
(0.3) |
|
0.5 |
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Selling, general, and administrative |
61.3 |
|
77.0 |
|
270.3 |
|
217.4 |
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Earnings (Loss) from joint ventures |
0.5 |
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(0.2) |
|
4.7 |
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(0.5) |
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Operating income |
71.1 |
|
33.0 |
|
112.2 |
|
96.6 |
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Losses related to sale and exit of business, net |
(64.0) |
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(1.0) |
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(65.3) |
|
(2.6) |
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Pension settlement charge |
–– |
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–– |
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–– |
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(26.7) |
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Interest expense, net |
(18.1) |
|
(11.3) |
|
(55.2) |
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(22.3) |
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Other expense, net |
(0.1) |
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(0.2) |
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(0.4) |
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(0.3) |
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Income (Loss) before income tax expense (benefit) |
(11.1) |
|
20.5 |
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(8.7) |
|
44.7 |
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Income tax expense (benefit) |
(2.2) |
|
6.5 |
|
12.8 |
|
7.5 |
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Net income (loss) |
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Earnings (Loss) per share – Basic |
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Earnings (Loss) per share – Diluted |
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Share data used for earnings (loss) per share: |
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Weighted average shares outstanding – Basic |
35.4 |
|
34.8 |
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35.4 |
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34.9 |
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Weighted average shares outstanding – Diluted |
35.4 |
|
35.2 |
|
35.4 |
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35.3 |
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Condensed consolidated balance sheets (In millions) |
2025 |
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2024 |
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(unaudited) |
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ASSETS |
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Cash and cash equivalents |
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Restricted cash |
16.5 |
|
10.3 |
Accounts receivable, net |
312.5 |
|
287.2 |
Contract assets |
153.3 |
|
123.2 |
Inventories, net |
775.7 |
|
733.1 |
Rotable assets and equipment on or available for lease |
30.1 |
|
81.5 |
Assets held for sale |
80.5 |
|
12.9 |
Other current assets |
81.8 |
|
55.6 |
Total current assets |
1,534.8 |
|
1,389.6 |
Property, plant, and equipment, net |
153.4 |
|
171.7 |
|
752.0 |
|
790.2 |
Rotable assets supporting long-term programs |
183.8 |
|
166.3 |
Operating lease right-of-use assets, net |
79.0 |
|
96.6 |
Other non-current assets |
156.1 |
|
155.6 |
Total assets |
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LIABILITIES AND EQUITY |
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Accounts payable |
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Other current liabilities |
266.3 |
|
228.9 |
Total current liabilities |
545.2 |
|
466.9 |
Long-term debt |
1,022.3 |
|
985.4 |
Operating lease liabilities |
67.6 |
|
80.3 |
Other liabilities and deferred revenue |
41.4 |
|
47.6 |
Total liabilities |
1,676.5 |
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1,580.2 |
Equity |
1,182.6 |
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1,189.8 |
Total liabilities and equity |
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Condensed consolidated statements of cash flows (In millions – unaudited) |
Three months February 28/29, |
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Nine months ended February 28/29, |
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2025 |
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2024 |
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2025 |
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2024 |
Cash flows provided by (used in) operating activities: |
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Net income (loss) |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
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Depreciation and amortization |
14.7 |
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8.8 |
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43.5 |
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25.9 |
Stock-based compensation expense |
5.6 |
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3.6 |
|
15.6 |
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11.5 |
Loss (Earnings) from joint ventures |
(0.5) |
|
0.2 |
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(4.7) |
|
0.5 |
Impairment charge |
63.0 |
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–– |
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63.0 |
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–– |
Pension settlement charge |
–– |
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–– |
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–– |
|
26.7 |
Provision for (Recovery of) credit losses |
(0.2) |
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0.1 |
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(0.3) |
|
0.5 |
Changes in certain assets and liabilities: |
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Accounts receivable |
(8.9) |
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(11.0) |
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(42.2) |
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(17.3) |
Contract assets |
(10.6) |
|
12.9 |
|
(37.8) |
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0.5 |
Inventories |
(19.2) |
|
(25.8) |
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(76.6) |
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(97.3) |
Rotable assets and equipment on or available for short-term lease |
(1.8) |
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(19.3) |
|
4.0 |
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(23.8) |
Prepaid expenses and other current assets |
(6.3) |
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(1.1) |
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(16.9) |
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(11.3) |
Rotable assets supporting long-term programs |
(12.1) |
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(2.9) |
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(24.2) |
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(6.9) |
Accounts payable and accrued liabilities |
(31.1) |
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46.3 |
|
71.5 |
|
93.5 |
Deferred revenue on long-term programs |
2.3 |
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(4.1) |
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(4.1) |
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(13.6) |
Other |
(4.7) |
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(1.3) |
|
15.4 |
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(6.8) |
Net cash provided by (used in) operating activities – continuing operations |
(18.7) |
|
20.4 |
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(15.3) |
|
19.3 |
Net cash used in operating activities – discontinued operations |
–– |
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–– |
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–– |
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(0.2) |
Net cash provided by (used in) operating activities |
(18.7) |
|
20.4 |
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(15.3) |
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19.1 |
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Cash flows used in investing activities: |
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Property, plant, and equipment expenditures |
(8.5) |
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(5.8) |
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(24.7) |
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(22.2) |
Other |
4.8 |
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(0.7) |
|
7.8 |
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(4.6) |
Net cash used in investing activities |
(3.7) |
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(6.5) |
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(16.9) |
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(26.8) |
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Cash flows provided by (used in) financing activities: |
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Short-term borrowings, net |
35.0 |
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–– |
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35.0 |
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5.0 |
Purchase of treasury stock |
–– |
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(5.1) |
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–– |
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(5.1) |
Other |
5.8 |
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(0.7) |
|
2.0 |
|
9.6 |
Net cash provided by (used in) financing activities |
40.8 |
|
(5.8) |
|
37.0 |
|
9.5 |
Increase in cash and cash equivalents |
18.4 |
|
8.1 |
|
4.8 |
|
1.8 |
Cash, cash equivalents, and restricted cash at beginning of period |
82.5 |
|
75.5 |
|
96.1 |
|
81.8 |
Cash, cash equivalents, and restricted cash at end of period |
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Third-party sales by segment (In millions – unaudited) |
Three months ended February 28/29, |
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Nine months ended February 28/29, |
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2025 |
2024 |
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2025 |
2024 |
Parts Supply |
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$ 794.1 |
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Repair & Engineering |
215.9 |
140.8 |
|
662.3 |
423.7 |
|
162.9 |
165.5 |
|
495.2 |
478.4 |
Expeditionary Services |
28.7 |
18.7 |
|
74.4 |
53.6 |
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Operating income (loss) by segment (In millions – unaudited) |
Three months ended February 28/29, |
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Nine months ended February 28/29, |
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2025 |
2024 |
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2025 |
2024 |
Parts Supply |
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Repair & Engineering |
19.0 |
11.5 |
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62.9 |
31.9 |
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9.6 |
8.6 |
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23.8 |
22.7 |
Expeditionary Services |
6.4 |
0.9 |
|
6.9 |
3.1 |
|
80.4 |
52.1 |
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200.7 |
132.3 |
Corporate and other |
(9.3) |
(19.1) |
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(88.5) |
(35.7) |
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Adjusted net income, adjusted diluted earnings per share, 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:
- Costs associated with
U.S. Foreign Corrupt Practices Act ("FCPA") matters that we self-reported to theU.S. Department of Justice and other agencies, including investigation costs and settlement charges. - Expenses associated with recent acquisition activity, including professional fees for legal, due diligence, and other acquisition activities, bridge financing fees, intangible asset amortization, integration costs, 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
Russia /Ukraine conflict. - 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 the impact from the
U.S. government exercising their termination for convenience in the first quarter of fiscal year 2025 for our Mobility Systems business's new-generation pallet contract. - Losses related to our exit from our Indian joint venture, our Landing Gear Overhaul business, and our Composites manufacturing business, including legal fees for the performance guarantee associated with the Composites' A220 aircraft contract.
Adjusted EBITDA is net income (loss) 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, FCPA investigation, settlement and remediation compliance costs, pension settlement charges, certain legal judgments, acquisition, integration, and amortization expenses from recent acquisition activity, and significant customer contract terminations.
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:
Adjusted net income (In millions – unaudited) |
Three months ended February 28/29, |
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Nine months ended February 28/29, |
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2025 |
2024 |
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2025 |
2024 |
Net income (loss) |
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Losses related to sale and exit of business/joint venture, net |
64.0 |
1.0 |
|
63.2 |
2.6 |
Acquisition, integration, and amortization expenses |
7.5 |
18.3 |
|
23.6 |
24.2 |
FCPA settlement and investigation costs |
1.1 |
2.0 |
|
65.3 |
5.7 |
Russian bankruptcy court judgment (reversal) |
(11.1) |
–– |
|
(11.1) |
11.2 |
Contract termination cost (benefit) |
(3.0) |
–– |
|
0.2 |
–– |
Pension settlement charge |
–– |
–– |
|
–– |
26.7 |
Tax effect on adjustments (a) |
(14.2) |
(5.0) |
|
(21.6) |
(20.5) |
Adjusted net income |
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(a) |
Calculation uses estimated statutory tax rates on non-GAAP adjustments except for the impact of the non-deductible portion of the FCPA settlement charge and the tax effect of the pension settlement charge, which includes income taxes previously recognized in accumulated other comprehensive loss. |
Adjusted diluted earnings per share (unaudited) |
Three months February 28/29, |
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Nine months ended February 28/29, |
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|
2025 |
2024 |
|
2025 |
2024 |
Diluted earnings (loss) per share |
|
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|
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Losses related to sale and exit of business/joint venture, net |
1.80 |
0.02 |
|
1.78 |
0.07 |
Acquisition, integration, and amortization expenses |
0.21 |
0.52 |
|
0.66 |
0.69 |
FCPA settlement and investigation costs |
0.03 |
0.06 |
|
1.84 |
0.16 |
Russian bankruptcy court judgment (reversal) |
(0.31) |
–– |
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(0.31) |
0.32 |
Contract termination benefit |
(0.09) |
–– |
|
–– |
–– |
Pension settlement charge |
–– |
–– |
|
–– |
0.76 |
Tax effect on adjustments (a) |
(0.40) |
(0.14) |
|
(0.61) |
(0.58) |
Adjusted diluted earnings per share |
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(a) |
Calculation uses estimated statutory tax rates on non-GAAP adjustments except for the impact of the non-deductible portion of the FCPA settlement charge and the tax effect of the pension settlement charge, which includes income taxes previously recognized in accumulated other comprehensive loss. |
Adjusted operating margin (In millions – unaudited) |
Three months ended |
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February |
November |
February |
Sales |
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Contract termination benefit |
(4.0) |
–– |
–– |
Adjusted sales |
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Operating income (loss) |
$ 71.1 |
|
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Acquisition, integration, and amortization expenses |
7.5 |
7.2 |
12.2 |
Contract termination benefit |
(3.0) |
–– |
–– |
FCPA settlement and investigation costs |
1.1 |
59.2 |
2.0 |
Russian bankruptcy court reversal |
(11.1) |
–– |
–– |
Gain related to sale of joint venture |
–– |
(0.7) |
–– |
Adjusted operating income |
$ 65.6 |
|
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|
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|
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Adjusted operating margin |
9.7 % |
9.2 % |
8.3 % |
Adjusted cash provided by (used in) operating activities (In millions – unaudited) |
Three months February 28/29, |
|
Nine months ended February 28/29, |
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|
2025 |
2024 |
|
2025 |
2024 |
Cash provided by (used in) operating activities |
|
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Amounts outstanding on accounts receivable financing program: |
|
|
|
|
|
Beginning of period |
23.9 |
13.7 |
|
13.7 |
12.8 |
End of period |
(20.2) |
(13.7) |
|
(20.2) |
(13.7) |
Adjusted cash provided by (used in) operating activities |
|
|
|
|
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Adjusted EBITDA (In millions – unaudited) |
Three months ended February 28/29, |
|
Nine months ended February 28/29, |
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Year ended May 31, |
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2025 |
2024 |
|
2025 |
2024 |
|
2024 |
Net income (loss) |
|
|
|
|
|
|
$ 46.3 |
Income tax expense (benefit) |
(2.2) |
6.5 |
|
12.8 |
7.5 |
|
12.0 |
Other expense, net |
0.1 |
0.2 |
|
0.4 |
0.3 |
|
0.4 |
Interest expense, net |
18.1 |
11.3 |
|
55.2 |
22.3 |
|
41.0 |
Depreciation and amortization |
14.0 |
8.8 |
|
41.5 |
25.9 |
|
41.2 |
Losses related to sale and exit of business/joint venture, net |
64.0 |
1.0 |
|
63.2 |
2.6 |
|
2.8 |
Russian bankruptcy court judgment (reversal) |
(11.1) |
–– |
|
(11.1) |
11.2 |
|
11.2 |
Contract termination/restructuring costs and loss provisions, net |
(3.0) |
–– |
|
0.2 |
–– |
|
4.8 |
Acquisition and integration expenses |
3.5 |
11.2 |
|
11.7 |
15.1 |
|
29.7 |
FCPA settlement and investigation costs |
1.1 |
2.0 |
|
65.3 |
5.7 |
|
10.5 |
Pension settlement charge |
–– |
–– |
|
–– |
26.7 |
|
26.7 |
Severance charges |
–– |
–– |
|
–– |
–– |
|
0.5 |
Stock-based compensation |
5.6 |
3.6 |
|
15.6 |
11.5 |
|
15.3 |
Adjusted EBITDA |
|
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|
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|
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Net debt (In millions – unaudited) |
February |
|
February 29, 2024 |
Total debt |
|
|
|
Less: Cash and cash equivalents |
(84.4) |
|
(69.2) |
Net debt |
|
|
|
Net debt to adjusted EBITDA (In millions - unaudited) |
|
Adjusted EBITDA for the year ended |
|
Less: Adjusted EBITDA for the nine months ended |
(166.0) |
Plus: Adjusted EBITDA for the nine months ended |
233.3 |
Adjusted EBITDA for the twelve months ended |
|
Net debt at |
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Net debt to Adjusted EBITDA |
3.06 |
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