Core Insights - AAR Corp. is a leading provider of aviation services, focusing on expanding market share through strategic initiatives [1] Financial Performance - AAR reported earnings per share (EPS) of $1.18, exceeding the estimated $1.02, reflecting strong operational execution [2][5] - The company achieved revenue of approximately $795.3 million, surpassing the forecasted $763.61 million, supported by a 16% increase in total sales year-over-year [3][5] - The Parts Supply business contributed significantly, with sales increasing by 29%, driven by a 32% organic sales growth in the new parts Distribution division [3] Financial Metrics - AAR's price-to-earnings (P/E) ratio is approximately 34.99, indicating investor confidence in its earnings potential [4][5] - The price-to-sales ratio is about 1.08, and the enterprise value to sales ratio is around 1.40, reflecting the company's market value relative to its sales [4] - AAR has a debt-to-equity ratio of approximately 0.67, suggesting a moderate level of debt, while a current ratio of about 2.84 indicates a strong ability to cover short-term liabilities [4]

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Financial Data and Key Metrics Changes - Total sales grew 16% year-over-year to $795 million, with 12% organic growth [18] - Adjusted EBITDA increased 23% to $96.5 million, with adjusted EBITDA margins rising to 12.1% from 11.4% [18] - Adjusted diluted EPS rose 31% to $1.18 from $0.90 in the same quarter last year [18] Business Line Data and Key Metrics Changes - Parts Supply sales increased 29% year-over-year to $354 million, with new parts distribution activities growing 32% [19] - Repair and Engineering sales rose 7% to $245 million, with adjusted EBITDA of $31.2 million, a 1% increase [20] - Integrated Solutions sales increased 8% to $176 million, with adjusted EBITDA rising 50% to $18.5 million [22] Market Data and Key Metrics Changes - Sales to government customers increased 23%, while sales to commercial customers rose 13% [18] - Total commercial sales accounted for 71% of total sales, with government sales making up 29% [18] Company Strategy and Development Direction - The company completed two strategic acquisitions and announced a third, focusing on high-growth parts supply and Repair and Engineering segments [5][6] - The company aims to enhance its digital capabilities through partnerships, such as with Aeroxchange [7] - The company is committed to disciplined portfolio management and operational efficiency [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, citing a strong backlog and no signs of destocking among airline customers [32] - For Q3, the company expects total sales growth of 20%-22%, with organic sales growth of 8%-11% [25] - The company anticipates margin dilution in the near term due to the integration of HAECO Americas but expects long-term margin improvement [33][75] Other Important Information - The company ended the quarter with lower leverage, achieving a net debt leverage of 2.49 times [22] - The company plans to exit its high-cost maintenance site in Indianapolis, redistributing work to improve margins [16] Q&A Session Summary Question: Can you provide more detail on the 32% growth in parts supply? - Management indicated that volume is the primary driver of growth, with significant contributions from existing distribution contracts [30] Question: Are there concerns about destocking at airline customers? - Management stated there are no signs of destocking, supported by a strong backlog [32] Question: What is the outlook for margins in the third quarter? - Management noted that margin dilution is expected due to the HAECO acquisition, but long-term margins are anticipated to improve [33] Question: What synergies exist between heavy maintenance and other businesses? - Management confirmed synergies between heavy maintenance and component repair, leveraging increased aircraft volume for component repairs [39] Question: What is the status of the Trax customer upgrade cycle? - Management reported that approximately 30%-35% of customer upgrades are in progress, with a goal to complete the bulk by the end of 2028 [50] Question: What are the growth prospects for the ART acquisition? - Management highlighted that the ART acquisition positions the company to participate more significantly in the aircraft interior modification market [57] Question: How does the company view the heavy maintenance business in terms of margins? - Management clarified that heavy maintenance is not a low-margin business and has seen significant margin gains post-COVID [80]

Financial Data and Key Metrics Changes - Total sales grew by 16% year over year to $795 million, with organic growth of 12% [18] - Adjusted EBITDA increased by 23% to $96.5 million, with adjusted EBITDA margins rising to 12.1% from 11.4% [18] - Adjusted diluted EPS rose by 31% to $1.18 per share from $0.90 in the same quarter last year [18] Business Line Data and Key Metrics Changes - Parts Supply sales increased by 29% year over year to $354 million, with new parts distribution activities growing by 32% [19] - Repair and Engineering sales rose by 7% to $245 million, with adjusted EBITDA of $31.2 million, a 1% increase from the previous year [20] - Integrated Solutions sales increased by 8% to $176 million, with adjusted EBITDA rising by 50% [22] Market Data and Key Metrics Changes - Sales to government customers increased by 23%, while sales to commercial customers grew by 13% [18] - Total commercial sales accounted for 71% of total sales, with government sales making up the remaining 29% [18] Company Strategy and Development Direction - The company completed two key strategic acquisitions and announced a third, aimed at enhancing its parts supply and repair and engineering segments [5][6] - The focus remains on organic growth in high-growth areas, disciplined portfolio management, and enhancing digital capabilities [6][8] - The company aims to leverage synergies between its repair and parts supply businesses to drive growth [10][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, citing a strong backlog and no signs of destocking among airline customers [32] - For Q3, total sales growth is expected to be in the range of 20%-22%, with organic sales growth projected at 8%-11% [25] - The company anticipates margin improvements over the next 12-18 months as integration efforts progress [22][88] Other Important Information - The company ended the quarter with a net debt leverage of 2.49 times, within its target range of 2.0 to 2.5 times [24] - The company is actively pursuing further M&A opportunities while managing ongoing integrations [47] Q&A Session Summary Question: Can you provide more detail on the 32% growth in parts supply? - Management indicated that volume is the primary driver of growth, with significant contributions from existing distribution contracts [30] Question: Are there concerns about destocking at airline customers? - Management stated there are no signs of destocking, supported by a strong backlog [32] Question: What are the expectations for margins in the upcoming quarters? - Management acknowledged that margins may be diluted in the short term due to acquisitions but expect improvements as integration progresses [33][75] Question: How do you see synergies between heavy maintenance and other businesses? - Management confirmed that there are significant synergies between heavy maintenance and component repair, leveraging increased aircraft volume [39] Question: What is the outlook for the Trax customer upgrade cycle? - Management reported that approximately 30%-35% of customer upgrades are completed, with a goal to finish the bulk by the end of 2028 [50] Question: What is the revenue potential for the ART acquisition? - Management did not disclose specific revenue figures but emphasized the growth potential in the aircraft interior reconfiguration market [57] Question: How do you view the margins in the heavy maintenance business? - Management clarified that heavy maintenance margins have improved significantly and are expected to continue expanding [80]

Financial Data and Key Metrics Changes - Total sales grew by 16% year over year to $795 million, with organic growth of 12% [16] - Adjusted EBITDA increased by 23% to $96.5 million, with adjusted EBITDA margins rising to 12.1% from 11.4% [16] - Adjusted diluted EPS rose by 31% to $1.18 per share from $0.90 in the same quarter last year [17] Business Line Data and Key Metrics Changes - Parts Supply sales increased by 29% year over year to $354 million, driven by a 32% growth in new parts distribution activities [17][18] - Repair and Engineering sales rose by 7% to $245 million, with adjusted EBITDA of $31.2 million, a 1% increase from the previous year [18] - Integrated Solutions sales grew by 8% to $176 million, with adjusted EBITDA increasing by 50% [19] Market Data and Key Metrics Changes - Sales to government customers increased by 23%, while sales to commercial customers rose by 13% [16] - Total commercial sales accounted for 71% of total sales, with government sales making up the remaining 29% [16] Company Strategy and Development Direction - The company completed two strategic acquisitions and announced a third, aimed at enhancing its parts supply and repair and engineering segments [4][5] - The focus remains on organic growth in high-growth areas, disciplined portfolio management, and enhancing digital capabilities [5][21] - The company aims to leverage synergies between its repair and distribution activities to drive growth [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, citing a strong backlog and no signs of destocking among airline customers [27] - For Q3, total sales growth is expected to be in the range of 20%-22%, with organic sales growth projected at 8%-11% [22] - The company anticipates margin improvements over the next 12-18 months as integration efforts progress [19][64] Other Important Information - The company successfully managed its balance sheet, reducing net debt leverage from 2.82 times to 2.49 times [22] - The integration of recent acquisitions is expected to enhance operational and financial performance over time [12][64] Q&A Session Summary Question: Can you provide more detail on the 32% growth in parts supply? - Management indicated that the majority of the growth was driven by volume, with significant contributions from existing distribution contracts [26] Question: Are there concerns about destocking at airline customers? - Management stated there are no signs of destocking, supported by a strong backlog [27] Question: What is the outlook for margins in the upcoming quarters? - Management acknowledged that margins may be diluted in the short term due to acquisitions but expect improvements as integration progresses [28] Question: How do you see synergies between heavy maintenance and other businesses? - Management confirmed that there are synergies between heavy maintenance and component repair, leveraging their leadership position to drive volume [31] Question: What is the status of the Trax customer upgrade cycle? - Approximately 30%-35% of customer upgrades have been agreed upon but not yet implemented, with a goal to complete the bulk by the end of 2028 [41] Question: What are the growth prospects for the ART acquisition? - Management highlighted that ART brings engineering and self-certification expertise, positioning the company to grow in the aircraft interior reconfiguration market [45] Question: What is the outlook for USM sales? - Management reported stable activity levels in USM sales, with no significant changes in market availability [46]

Sales Performance - Consolidated sales for Q2 fiscal 2026 increased by $109.2 million, or 15.9%, compared to the prior year quarter, driven by strong demand in commercial customer sales [194]. - Sales to commercial customers rose by $66.2 million, or 13.2%, primarily due to growth in new parts Distribution activities, including $19.3 million from the recent ADI acquisition [194]. - Sales to government customers increased by $43.0 million, or 23.1%, mainly due to volume growth in the Parts Supply segment [194]. - For the six-month period ended November 30, 2025, the Parts Supply segment reported third-party sales of $671.4 million, a 28.3% increase from $523.4 million in the prior year [219]. - The Repair & Engineering segment saw a 2.8% increase in third-party sales to $459.1 million, with operating income slightly decreasing by 1.8% to $43.1 million [221]. - The Integrated Solutions segment's third-party sales rose by 8.6% to $360.8 million, with operating income increasing by 66.2% to $23.6 million [223]. - The Expeditionary Services segment experienced a 4.6% decline in sales to $43.6 million, but operating income surged by 980.0% to $5.4 million due to the impact of contract termination [226][227]. Profitability - Consolidated gross profit for Q2 fiscal 2026 increased by $28.3 million, or 22.0%, with government customer gross profit rising by $16.0 million, or 51.9% [196]. - The gross profit margin on sales to government customers improved to 20.4% from 16.6% in the prior year quarter [196]. - Operating income in the Parts Supply segment increased by $20.1 million, or 32.6%, to $81.8 million, driven by improved profitability from increased sales volume [220]. Expenses and Taxation - Selling, general, and administrative expenses decreased by $44.4 million, or 33.4%, from the prior year quarter, primarily due to the settlement of FCPA matters [198]. - The effective income tax rate for continuing operations was 28.1% for Q2 fiscal 2026, down from 36.0% in the prior year quarter [201]. - The effective income tax rate for continuing operations was 27.4% for the six-month period ended November 30, 2025, compared to an income tax expense of $15.0 million in the prior year [210]. Acquisitions and Investments - The company acquired American Distributors Holding Co. for $137.7 million, enhancing its distribution capabilities in the aerospace and defense industry [179]. - The company is expanding its Miami and Oklahoma City airframe maintenance facilities, with the Miami facility expected to be completed in mid-to-late calendar 2026 [182]. - The company expects long-term growth in aviation products and services, emphasizing investments in both commercial and government markets [192]. Liquidity and Financing - As of November 30, 2025, the company had liquidity and capital resources of $1,096.1 million, including cash of $75.6 million [229]. - The company entered into an amendment to its revolving credit facility, increasing commitments to $825.0 million from $620.0 million [230]. - Borrowings outstanding under the amended revolving credit facility were $260.0 million, with $10.0 million in outstanding letters of credit [232]. - The company issued $550.0 million in Senior Notes at a 6.75% interest rate to fund part of the acquisition of the Product Support business [233]. - The maximum amount of receivables sold under the Purchase Agreement with Citibank N.A. is limited to $150.0 million, with $20.5 million utilized as of November 30, 2025, reducing availability to $129.5 million [237][238]. - In Q2 of fiscal 2026, the company sold 3,450,000 shares of common stock at $83.00 per share, resulting in net proceeds of $273.9 million after expenses [239]. - The stock repurchase program allows for up to $150 million in repurchases, with 2.4 million shares repurchased for an aggregate price of $107.5 million since inception, but no repurchases occurred in the last six months [240]. - Net cash used in operating activities was $31.3 million for the six months ended November 30, 2025, a decrease of $34.7 million compared to the prior year [241]. - Net cash used in investing activities increased to $237.1 million for the six months ended November 30, 2025, primarily due to acquisitions of ADI and HAECO Americas [242]. - Net cash provided by financing activities was $255.4 million for the six months ended November 30, 2025, an increase of $259.2 million compared to the prior year, largely due to the common stock offering [243]. Risks and Accounting Policies - There have been no significant changes to critical accounting policies during the second quarter of fiscal 2026 [244]. - The company faces various risks that could materially affect future results, including competition, operational management, and integration of acquisitions [248]. - A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on the financial position for the quarter ended November 30, 2025 [251]. - There were no significant changes in interest rate risk during the quarter ended November 30, 2025 [252].

Financial Performance - Sales increased by 16% from Q2 FY25 to Q2 FY26[9] - Adjusted EBITDA increased by 23% from Q2 FY25 to Q2 FY26[9] - Adjusted EPS increased by 31% from Q2 FY25 to Q2 FY26[9] - Parts Supply sales increased by 29% from Q2 FY25 to Q2 FY26[28] - Integrated Solutions sales increased by 8% from Q2 FY25 to Q2 FY26[38] - Adjusted operating margin increased from 92% to 102%[24] Acquisitions and Strategic Initiatives - Acquired ADI, a distributor of electronic components and assemblies, with $149 million in sales and $15 million in EBITDA[9, 13] - Acquired HAECO Americas, the 2nd largest independent North American heavy maintenance provider, securing $850 million+ in new multi-year contracts[9, 15] - Announced an agreement to acquire Aircraft Reconfig Technologies for $35 million[9, 20] Balance Sheet and Leverage - Net leverage decreased by 109x since the Product Support acquisition[41] - The company is targeting a net leverage ratio of 20x – 25x[42, 46] Guidance - Q3 FY26 total sales growth is projected to be 20%-22%, with organic sales growth of 8%-11%[53]

Financial Performance - Total sales for Q2 FY2026 reached $795 million, a 16% increase compared to $686.1 million in Q2 FY2025[11] - Organic sales growth was 12%, with Parts Supply business sales up 29% and new parts Distribution achieving 32% organic sales growth[3] - Adjusted EBITDA increased by 23% to $97 million, with adjusted EBITDA margin rising from 11.4% to 12.1%[4] - The company reported adjusted diluted EPS of $1.18, a 31% increase from $0.90 in the same quarter last year[6] - Sales for the three months ended November 30, 2025, reached $795.3 million, a 15.9% increase compared to $686.1 million in the same period of 2024[41] - Adjusted EBITDA for the three months ended November 30, 2025, was $96.5 million, compared to $78.4 million for the same period in 2024, indicating a 23.3% increase[42] - Adjusted net income for the three months ended November 30, 2025, was $45.4 million, compared to $32.3 million for the same period in 2024, reflecting a year-over-year increase of 40.6%[39] - Adjusted diluted earnings per share for the three months ended November 30, 2025, was $1.18, up from $0.90 in the same period of 2024, representing a 31.1% increase[40] - Net income for the three months ended November 30, 2025, was $34.6 million, a significant recovery from a net loss of $30.6 million in the same period of 2024[28] - Earnings per share (EPS) for the three months ended November 30, 2025, was $0.91, compared to a loss per share of $0.87 in the same period of 2024[28] Strategic Acquisitions - AAR completed two strategic acquisitions: ADI for $138 million and HAECO Americas for $77 million, enhancing its Parts Supply and Repair & Engineering segments[15] - AAR secured $850 million in airframe heavy maintenance contracts as part of the HAECO Americas acquisition, effectively selling out acquired capacity for several years[7] Sales Growth and Segments - Sales to government customers increased by 23%, driven by higher order volumes for new parts Distribution activities[11] - Parts Supply segment sales for the three months ended November 30, 2025, were $353.6 million, up 29.2% from $273.7 million in 2024[35] - Integrated Solutions segment operating income increased to $13.9 million for the three months ended November 30, 2025, compared to $6.5 million in 2024[35] - Organic sales growth for the three months ended November 30, 2025, was 12.2%, after accounting for the impact of divestitures and acquisitions[41] Financial Health and Leverage - Net leverage stood at 2.49x, indicating a strong balance sheet with capacity for further investments[8] - The net debt at November 30, 2025, was $884.4 million, down from $935.3 million at the same time in 2024[42] - The net debt to adjusted EBITDA ratio as of November 30, 2025, was 2.49, indicating a manageable leverage position[43] Cash Flow and Operating Activities - Cash flow from operating activities was $13.6 million, down from $22 million in the prior year quarter[17] - Cash provided by operating activities for the three months ended November 30, 2025, was $13.6 million, a decrease from $22.0 million in the same period of 2024[41] - The company incurred $14.2 million in acquisition, integration, and amortization expenses for the three months ended November 30, 2025[39] Future Outlook - The company expects total sales growth of 20% to 22% for Q3 FY2026 and adjusted operating margin between 9.8% and 10.1%[18] Asset Management - Total assets increased to $3,242.5 million as of November 30, 2025, up from $2,844.6 million as of May 31, 2025[31] - Cash and cash equivalents at the end of the period were $96.2 million, compared to $82.5 million at the end of the same period in 2024[32] - Gross profit for the six months ended November 30, 2025, rose to $290.6 million, compared to $245.8 million in 2024, reflecting a 18.2% increase[28]

"During the quarter, we closed on two strategic acquisitions: ADI in Parts Supply and HAECO Americas in Repair & Engineering. The ADI acquisition builds upon our differentiated new parts Distribution activities, adds new OEM relationships through its production-facing distribution channel, and expands our range of product offerings. This acquisition creates a new growth vector for Distribution, which has been our fastest growing activity over the last 4 years. "The HAECO Americas acquisition extends our lea ...