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]

Core Insights - AAR CORP. reported a strong second quarter for fiscal year 2026, with total sales increasing by 16% to $795.3 million compared to $686.1 million in the same quarter last year, driven by organic growth of 12% and a notable 29% increase in Parts Supply sales [2][10] - The company achieved a 23% growth in adjusted EBITDA, with adjusted margins expanding from 11.4% to 12.1%, indicating improved operational efficiency and profitability [3][8] - Recent strategic acquisitions, including ADI and HAECO Americas, are expected to enhance AAR's market position and drive future growth, particularly in new parts distribution and airframe heavy maintenance [4][5] Financial Performance - Total sales for the second quarter reached $795 million, a 16% increase year-over-year, with sales to commercial customers up 13% and sales to government customers up 23% [10][11] - The company reported a net income of $34.6 million, or $0.90 per diluted share, a significant recovery from a net loss of $30.6 million in the prior year quarter [11][27] - Adjusted diluted earnings per share increased by 31% to $1.18, reflecting strong operational performance [8][11] Operational Highlights - The Parts Supply segment saw a remarkable 29% increase in sales, with new parts distribution achieving 32% organic sales growth [2][10] - The Repair & Engineering segment also contributed to growth, benefiting from increased efficiency and volume in component repair facilities [2][3] - AAR's balance sheet remains robust, with net leverage at 2.49x, providing capacity for further investments [6][15] Strategic Acquisitions - The acquisition of ADI enhances AAR's distribution capabilities and expands its product offerings, creating a new growth vector in the Parts Supply segment [4] - The HAECO Americas acquisition solidifies AAR's position in airframe heavy maintenance, with secured agreements totaling approximately $850 million, effectively utilizing the acquired capacity [5][7] - AAR is also in the process of acquiring Aircraft Reconfig Technologies for $35 million, expected to close in the fourth quarter of fiscal year 2026 [17] Future Guidance - For the third quarter of fiscal year 2026, AAR anticipates total sales growth of 20% to 22% and organic sales growth of 8% to 11% [18] - The full year guidance has been updated to reflect total sales growth approaching 17% and organic sales growth approaching 11% [19]

Core Insights - AAR Corp.'s subsidiaries, Trax and Aerostrat, have been selected by Thai Airways to assist in the airline's digital maintenance, repair, and overhaul (MRO) transformation [2][3] Group 1: Company Developments - Trax will implement its eMRO enterprise resource planning platform, eMobility applications, and cloud hosting services to enhance Thai Airways' maintenance operations, enabling real-time data access and improved workflow efficiency [2] - Aerostrat will provide its Aerros maintenance planning software, which focuses on long-term maintenance forecasting and optimization to enhance fleet availability and cost efficiency [3] - Thai Airways will also adopt AI-driven solutions from both Trax and Aerostrat to improve planning, automate workflows, and support defect resolution, thereby enhancing scalability and operational flexibility [3] Group 2: Industry Context - The demand for aircraft maintenance and upgrade solutions is increasing due to rising air travel and advancements in aerospace technology, as airlines expand fleets and extend aircraft service lives [4] - The global aircraft MRO market is projected to grow at a CAGR of 4.75% from 2025 to 2030, indicating favorable industry dynamics for established MRO providers like AAR [6] Group 3: Competitive Landscape - Other aerospace companies expected to benefit from the expanding MRO market include GE Aerospace, which plans to invest $75 million in MRO and component repair facilities in the APAC region by the end of 2025 [7] - RTX Corporation's Collins Aerospace unit operates five facilities in Singapore, providing MRO and manufacturing services, with a long-term earnings growth rate of 10.21% [8][9] - Lockheed Martin's Sikorsky Military Aircraft unit offers comprehensive aircraft support services, with a long-term earnings growth rate of 11.94% [10] Group 4: Stock Performance - AAR's stock has increased by 6% over the past three months, outperforming the industry growth of 0.2% [11]

Core Viewpoint - U.S. stock futures are trading higher, with several companies expected to report earnings and revenue figures that may attract investor attention [1] Company Summaries - **AngioDynamics, Inc. (NASDAQ:ANGO)**: Expected to report a quarterly loss of $0.10 per share on revenue of $76.30 million. Shares decreased by 0.2% to $13.20 in after-hours trading [1] - **Microchip Technology Inc (NASDAQ:MCHP)**: Anticipates third-quarter fiscal 2026 net sales of approximately $1.185 billion, exceeding previous guidance of $1.109 billion to $1.149 billion. Shares increased by 3.2% to $69.20 in after-hours trading [1] - **AAR Corp (NYSE:AIR)**: Analysts expect quarterly earnings of $1.04 per share on revenue of $761.13 million, with earnings to be released after market close. Shares rose by 0.8% to $88.70 in after-hours trading [1] - **Galapagos NV – ADR (NASDAQ:GLPG)**: The board has decided to wind down the company's cell therapy activities after a strategic review. Shares increased by 6% to $34.70 in after-hours trading [1] - **Penguin Solutions Inc. (NASDAQ:PENG)**: Expected to report quarterly earnings of $0.44 per share on revenue of $338.76 million after market close. Shares rose by 0.6% to $21.19 in after-hours trading [1]

Performance - Night Watch Investment Management LP experienced a net depreciation of -1.80% in Q4 2025, concluding the year with a total performance of 23.61% [2] - The performance in 2025 was broad-based and not reliant on a few securities, despite high volatility in single stocks during Q4 [2] Notable Positions - Haypp (HAYPP) emerged as the top performer, benefiting from regulatory resolutions and a reintroduction of Zyn at lower costs, positioning for high-margin growth in 2026 [3] - Allfunds (ALLFG) saw inflows into European securities and received a non-binding acquisition bid from Deutsche Boerse, leading to a reduction in Night Watch's position [4] - Marex (MRX), a Futures Commission Merchant, showed resilience despite market concerns over interest rates and exchange volumes, becoming the largest position in the portfolio with a P/E ratio around 9x [5] - Western Digital Corp (WDC) benefited from a memory shortage linked to AI data centers, with shares increasing over 200% since purchase, prompting a scaling down of the position [6] - Endava (DAVA) faced challenges as an IT services provider perceived as an AI loser, but potential for growth exists if programming efficiency leads to higher project volumes [7][8] - Distribution Solutions Group (DSGR) maintained performance expectations with organic growth accelerating to 6%, despite a contraction in US industrial activity [9] Portfolio Strategy - Night Watch employs a global value strategy focusing on companies with identifiable catalysts for re-rating, such as industry tailwinds or company-specific events [10] - The portfolio as of December 31, 2025, includes 32 positions with a significant focus on defensive sectors, Europe, and unique holdings to provide diversification [12] Outlook - The outlook indicates that after four years of economic difficulty, opportunities are emerging in industrials and consumer discretionary sectors, with expectations for further rate cuts and tax refunds supporting US consumer spending [15][16] - The investment strategy includes a focus on international markets, particularly in Japan, Hong Kong, and Brazil, with a belief that Brazil's equity market will normalize over time [17] - Defensive sectors, including food production and healthcare, are prioritized, with an emphasis on acquiring undervalued stocks with strong free cash flow yields [18] Company Update - Night Watch acquired a controlling stake in KEDM Inc., enhancing its research capabilities and aligning with its investment strategy focused on value and catalysts [22][24]