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Company Performance - AAR reported quarterly earnings of $1.08 per share, exceeding the Zacks Consensus Estimate of $0.98 per share, and up from $0.85 per share a year ago, representing an earnings surprise of +10.20% [1] - The company posted revenues of $739.6 million for the quarter ended August 2025, surpassing the Zacks Consensus Estimate by 7.86%, compared to $661.7 million in the same quarter last year [2] - AAR has surpassed consensus EPS estimates in all four of the last quarters and has topped consensus revenue estimates three times during the same period [2] Stock Performance - AAR shares have increased approximately 25.5% since the beginning of the year, outperforming the S&P 500's gain of 13.8% [3] - The current consensus EPS estimate for the upcoming quarter is $1.07 on revenues of $706.94 million, and for the current fiscal year, it is $4.43 on revenues of $2.87 billion [7] Industry Outlook - The Aerospace - Defense Equipment industry, to which AAR belongs, is currently ranked in the top 25% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact AAR's stock performance [5]

Financial Data and Key Metrics Changes - Total adjusted sales grew 13% to $740 million year over year, with organic sales growth at 17% when excluding landing gear sales from the previous year [9][10] - Adjusted EBITDA increased 18% to $86.7 million, with adjusted EBITDA margins rising to 11.7% from 11.3% [9] - Adjusted diluted EPS increased by 27% to $1.08 from $0.85 in the same quarter last year [10] Business Line Data and Key Metrics Changes - Parts supply sales grew 27% to $318 million, with adjusted EBITDA of $43.8 million, up 34%, and adjusted EBITDA margin increasing to 13.8% from 13.1% [10][11] - Repair and engineering sales decreased 1% to $215 million, but organic sales growth was 8% when excluding landing gear divestiture, with adjusted EBITDA of $28.1 million, up 1% [11][12] - Integrated solutions sales increased by 10% year over year to $185 million, with adjusted EBITDA of $14.2 million, up 5% [12] Market Data and Key Metrics Changes - Adjusted sales growth to government customers increased 21%, while adjusted organic sales to commercial customers increased 15% [9] - Total commercial sales accounted for 71% of total sales, with government sales making up the remaining 29% [9] Company Strategy and Development Direction - The company is focused on driving growth through market share capture and new business, improving margins through cost efficiency, and increasing intellectual property through software investments [5][15] - The acquisition of Aerostrat is expected to enhance software capabilities and expand the reach of Trax software solutions [8][14] - The company aims to continue strengthening its offerings with targeted acquisitions to accelerate its strategy [15][16] Management's Comments on Operating Environment and Future Outlook - Management expects sales growth of 7% to 10% for Q2, with organic sales growth approaching 10% for the full fiscal year [15] - The company is encouraged by the additional assets coming to market, which is expected to drive growth in the USM business [31] - Management highlighted the importance of maintaining cash positivity while investing in inventory to support growth [37] Other Important Information - The company invested over $50 million in inventory to support future growth, particularly in parts supply [14] - Net debt leverage increased slightly from 2.72 times to 2.82 times due to organic and inorganic investments [13] Q&A Session Summary Question: What is behind the slight uptick in full-year expectations? - Management indicated that parts supply is leading the way with a strong quarter showing 27% organic growth [18] Question: Can you comment on the pipeline for new distribution agreements? - Management noted that the majority of recent wins have been from taking market share, with a different exclusive distribution model resonating well [19][20] Question: Do you expect to outgrow the market within distribution? - Management confirmed the expectation to maintain growth above market rates in distribution [24] Question: What are the cross-selling opportunities within repair and engineering? - Management stated that they are in the early stages of executing a cross-selling strategy, with a long pipeline of opportunities [26] Question: Has the trend in USM sales continued into the current quarter? - Management confirmed a meaningful growth in USM business, driven by a loosening supply of assets [31] Question: What is the margin opportunity for parts supply with more USM available? - Management indicated that while USM margins have been depressed, they expect margins to expand as more supply comes to market [32] Question: Is there an agreement with Aerostrat employees to retain key personnel? - Management confirmed an earnout agreement for key team members to incentivize retention [33] Question: What is the company's exposure to engine-related aftermarket services? - Management highlighted significant exposure, with 80% of USM parts being engine-related [41] Question: How far along is Trax in becoming a digital marketplace? - Management stated that they are actively investing in making Trax a digital marketplace, with announcements expected in the first half of 2026 [45]

Financial Data and Key Metrics Changes - Total adjusted sales grew 13% to $740 million year over year, with organic sales growth at 17% when excluding landing gear sales from the previous year [10][11] - Adjusted EBITDA increased 18% to $86.7 million, with adjusted EBITDA margins rising to 11.7% from 11.3% [10] - Adjusted diluted EPS increased by 27% to $1.08 from $0.85 in the same quarter last year [11] Business Line Data and Key Metrics Changes - Parts supply sales grew 27% to $318 million, with adjusted EBITDA of $43.8 million, up 34%, and adjusted EBITDA margin increasing to 13.8% from 13.1% [11][12] - Repair and engineering sales decreased 1% to $215 million, but organic sales growth was 8% when excluding landing gear divestiture, with adjusted EBITDA of $28.1 million, up 1% [12] - Integrated solutions sales increased by 10% year over year to $185 million, with adjusted EBITDA of $14.2 million, up 5% [13] Market Data and Key Metrics Changes - Adjusted sales growth to government customers increased 21%, while adjusted organic sales to commercial customers increased 15% [10] - Total commercial sales accounted for 71% of total sales, with government sales making up the remaining 29% [10] Company Strategy and Development Direction - The company is focused on driving growth through market share capture and new business, improving margins through cost efficiency, and increasing intellectual property through software investments [6][16] - The acquisition of Aerostrat is expected to enhance software capabilities and expand the reach of Trax software solutions [9][15] - The company aims to strengthen its offerings with targeted acquisitions to accelerate its strategy [16][17] Management's Comments on Operating Environment and Future Outlook - Management expects sales growth of 7% to 10% for Q2, with full fiscal year organic sales growth approaching 10% [16] - The company is well positioned in attractive segments of the growing aviation aftermarket, with unique distribution and repair capabilities [16] Other Important Information - The company invested over $50 million in inventory to support future growth, particularly in parts supply [15][37] - Net debt leverage increased slightly from 2.72 times to 2.82 times due to organic and inorganic investments [14] Q&A Session Summary Question: What is behind the slight uptick in full-year expectations? - Management indicated that parts supply is leading the way with a strong quarter showing 27% organic growth [19] Question: Can you comment on the pipeline for new distribution agreements? - The majority of recent wins have been from taking market share, with a different exclusive distribution model resonating well with OEMs [20][21] Question: Do you still expect to outgrow the market within distribution? - Management confirmed the expectation to maintain growth above market rates in distribution [25] Question: Can you discuss cross-selling opportunities within repair and engineering? - Management noted they are in the early stages of executing a cross-selling strategy, with a long pipeline of opportunities [26][28] Question: Has the trend in USM sales continued into the current quarter? - Management observed a meaningful growth in USM business, driven by a loosening supply of assets [31] Question: What is the margin opportunity for parts supply if more USM comes available? - Management expects margins to expand as more supply comes onto the market, although current margins are tighter than historical levels [32] Question: Is there an agreement with Aerostrat employees to ensure retention? - There is a three-year earnout associated with the acquisition to incentivize key team members to stay [33] Question: What is the company's exposure to engine-related aftermarket services? - Management stated that 80% of USM parts business is engine-related, indicating significant exposure in this area [41] Question: How far along is Trax in becoming a digital marketplace? - Management is actively investing in making Trax a digital marketplace, with expected announcements in the first half of 2026 [45]

Financial Data and Key Metrics Changes - Total adjusted sales grew 13% year-over-year to $740 million, with organic sales growth at 17% when excluding landing gear sales from the previous year [10] - Adjusted EBITDA increased 18% to $86.7 million, with adjusted EBITDA margins rising to 11.7% from 11.3% [10] - Adjusted diluted EPS rose 27% to $1.08 from $0.85 in the same quarter last year [11] Business Line Data and Key Metrics Changes - Parts supply sales increased 27% to $318 million, with adjusted EBITDA for this segment rising 34% to $43.8 million and adjusted EBITDA margins increasing to 13.8% from 13.1% [11] - Repair and engineering sales decreased 1% to $215 million, but organic sales growth was 8% when excluding the impact of landing gear divestiture [12] - Integrated solutions sales grew 10% year-over-year to $185 million, with adjusted EBITDA of $14.2 million, a 5% increase [14] Market Data and Key Metrics Changes - Adjusted sales growth to government customers increased 21%, while adjusted organic sales to commercial customers rose 15% [10] - Total commercial sales accounted for 71% of total sales, with government sales making up the remaining 29% [10] Company Strategy and Development Direction - The company is focused on driving growth through market share capture and new business, improving margins through cost efficiency, and increasing intellectual property through software investments [6] - The acquisition of Aerostrat is expected to enhance software capabilities and expand the reach of the Trax software solution [9] - The company aims to continue strengthening its offerings with targeted acquisitions to accelerate its strategy [17] Management's Comments on Operating Environment and Future Outlook - Management expects sales growth of 7%-10% for Q2, with organic sales growth for the full fiscal year approaching 10% [16] - The company is encouraged by the additional assets coming to market, which is expected to drive growth in the USM business [31] - Management remains confident in securing volume over time through strong relationships with large airline customers [28] Other Important Information - The company invested over $50 million in inventory to support future growth, particularly in the parts supply segment [15] - Net debt leverage increased slightly from 2.72x to 2.82x due to organic and inorganic investments [14] Q&A Session Summary Question: What is behind the slight uptick in full-year expectations? - Management indicated that parts supply is leading the way with a strong quarter showing 27% organic growth [19] Question: Can you comment on the pipeline for new distribution agreements? - Management noted that the majority of recent wins have been from taking market share, with a different exclusive distribution model resonating well [20][21] Question: Do you still expect to outgrow the market within distribution? - Management confirmed the outlook for distribution remains strong, expecting to continue growing above market rates [25] Question: Can you discuss cross-selling opportunities within repair and engineering? - Management stated they are in the early stages of executing their cross-selling strategy, with a long pipeline of opportunities [26][28] Question: Has the trend in USM sales continued into the current quarter? - Management confirmed a meaningful growth in USM business, driven by a loosening supply of assets [31] Question: What is the margin opportunity for parts supply if more USM comes available? - Management indicated that while USM margins have been depressed, they expect margins to expand as more supply comes to market [32] Question: Is there an agreement with Aerostrat employees to ensure retention? - Management confirmed an earnout agreement for key team members to incentivize their retention [33] Question: What is the company's exposure to engine-related aftermarket services? - Management highlighted significant exposure to the engine market, with 80% of USM parts business being engine-related [42] Question: How far along is Trax in becoming a digital marketplace? - Management stated that investments are being made to leverage Trax's position for offering parts and repair solutions, with announcements expected in the first half of 2026 [44]

Financial Data and Key Metrics Changes - Total adjusted sales grew 13% to $740 million year over year, with organic sales growth at 17% when excluding landing gear sales from the previous year [8] - Adjusted EBITDA increased 18% to $86.7 million, with adjusted EBITDA margins rising to 11.7% from 11.3% [8] - Adjusted diluted EPS increased by 27% to $1.08 from $0.85 in the same quarter last year [9] Business Line Data and Key Metrics Changes - Parts supply sales grew 27% to $318 million, with adjusted EBITDA for this segment increasing by 34% [9] - Repair and engineering sales decreased 1% to $215 million, but organic sales growth was 8% when excluding the impact of landing gear divestiture [10] - Integrated solutions sales increased by 10% year over year to $185 million, with adjusted operating income rising by 5% [11] Market Data and Key Metrics Changes - Adjusted sales growth to government customers increased 21%, while adjusted organic sales to commercial customers increased 15% [8] - Total commercial sales accounted for 71% of total sales, with government sales making up the remaining 29% [8] Company Strategy and Development Direction - The company is focused on driving growth through market share capture and new business, improving margins through cost efficiency, and increasing intellectual property through software investments [5] - The acquisition of Aerostrat is expected to enhance software capabilities and expand the reach of the Trax software solution [7] - The company aims to continue strengthening its offerings with targeted acquisitions to accelerate its strategy [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving organic sales growth approaching 10% for the full fiscal year, up from the previously cited 9% [14] - The company noted a strong start to the year and highlighted the strength of its business in the growing aviation aftermarket [14] - Management indicated that the supply of used serviceable materials (USM) is improving, which is expected to positively impact margins in the future [25][26] Other Important Information - The company invested over $50 million in inventory to support future growth, particularly in the parts supply segment [12] - The net debt leverage increased slightly from 2.72 times to 2.82 times due to organic and inorganic investments made during the quarter [11] Q&A Session Questions and Answers Question: What is behind the slight uptick in full-year expectations? - Management indicated that parts supply is leading the way with a strong quarter showing 27% organic growth [17] Question: Can you comment on the pipeline for new distribution agreements? - The majority of recent wins have been from taking market share, with a different exclusive distribution model resonating well with OEMs [18] Question: Do you still expect to outgrow the market within distribution? - Management maintained the outlook for distribution, expecting to continue growing above market rates [20] Question: What are the cross-selling opportunities within repair and engineering? - Management stated they are in the early stages of executing their cross-selling strategy, with a long pipeline of opportunities [22] Question: Has the trend in USM sales continued into the current quarter? - Management confirmed a meaningful growth in USM business, driven by a loosening supply of assets [25] Question: What is the margin opportunity for parts supply if more USM comes available? - Management expects margins to expand as more supply comes onto the market, although current margins in USM are tighter than historically [26] Question: Is there an agreement with Aerostrat employees to ensure retention? - There is a three-year earnout associated with the transaction to incentivize key team members to stay [28] Question: What is the company's exposure to engine-related aftermarket services? - Management confirmed significant exposure, with 80% of USM parts business related to engines [34] Question: How far along is Trax in becoming a digital marketplace? - Management indicated that investments are being made to leverage Trax's position for offering parts and repair solutions [36]

PART I — FINANCIAL INFORMATION This section presents AAR CORP.'s unaudited condensed consolidated financial statements and related notes, along with management's discussion and analysis, market risk disclosures, and controls [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents AAR CORP.'s unaudited condensed consolidated financial statements for the quarter ended August 31, 2025, including core financial statements and detailed explanatory notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table provides a snapshot of AAR CORP.'s financial position, detailing assets, liabilities, and equity at specific quarter-end dates Condensed Consolidated Balance Sheets (Millions) | Balance Sheet Item | May 31, 2025 (Millions) | August 31, 2025 (Millions) | Change (Millions) | % Change | | :----------------- | :---------------------- | :------------------------- | :---------------- | :------- | | Total Assets | $2,844.6 | $2,929.7 | $85.1 | 3.0% | | Total Liabilities | $1,078.3 | $1,141.9 | $63.6 | 5.9% | | Total Equity | $1,211.6 | $1,249.3 | $37.7 | 3.1% | | Cash & Equivalents | $96.5 | $80.0 | $(16.5) | (17.1%) | | Inventories | $809.2 | $861.5 | $52.3 | 6.5% | | Long-term Debt | $968.0 | $1,022.1 | $54.1 | 5.6% | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This table outlines AAR CORP.'s financial performance over the quarter, showing sales, costs, and net income Condensed Consolidated Statements of Income (Millions) | Income Statement Item | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | % Change | | :-------------------- | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Sales | $739.6 | $661.7 | $77.9 | 11.8% | | Cost of Sales | $605.9 | $544.5 | $61.4 | 11.3% | | Gross Profit | $133.7 | $117.2 | $16.5 | 14.1% | | Operating Income | $64.9 | $43.4 | $21.5 | 49.5% | | Net Income | $34.4 | $18.0 | $16.4 | 91.1% | | EPS - Basic | $0.96 | $0.50 | $0.46 | 92.0% | | EPS - Diluted | $0.95 | $0.50 | $0.45 | 90.0% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This table presents AAR CORP.'s total comprehensive income, including net income and other comprehensive income items like currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Millions) | Comprehensive Income Item | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | % Change | | :------------------------ | :------------------------------------- | :------------------------------------- | :---------------- | :------- | | Net Income | $34.4 | $18.0 | $16.4 | 91.1% | | Currency Translation Adj. | $0.4 | $1.5 | $(1.1) | (73.3%) | | Comprehensive Income | $34.8 | $19.5 | $15.3 | 78.5% | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table details AAR CORP.'s cash inflows and outflows from operating, investing, and financing activities for the quarter Condensed Consolidated Statements of Cash Flows (Millions) | Cash Flow Activity | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | | :----------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Operating | $(44.9) | $(18.6) | $(26.3) | | Investing | $(23.8) | $(5.3) | $(18.5) | | Financing | $51.1 | $(9.1) | $60.2 | | Net Decrease | $(17.6) | $(33.0) | $15.4 | | Cash, End of Period| $91.6 | $63.1 | $28.5 | [Condensed Consolidated Statements of Changes in Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) This table illustrates the changes in AAR CORP.'s equity components, including common stock, retained earnings, and treasury stock, over the quarter Condensed Consolidated Statements of Changes in Equity (Millions) | Equity Component | Balance May 31, 2025 (Millions) | Net Income (Millions) | Stock Option Activity (Millions) | Restricted Stock Activity (Millions) | Other Comprehensive Income (Millions) | Balance Aug 31, 2025 (Millions) | | :--------------- | :------------------------------ | :-------------------- | :------------------------------- | :----------------------------------- | :------------------------------------ | :------------------------------ | | Common Stock | $45.3 | — | — | — | — | $45.3 | | Capital Surplus | $505.2 | — | $2.5 | $(4.2) | — | $503.5 | | Retained Earnings| $969.4 | $34.4 | — | — | — | $1,003.8 | | Treasury Stock | $(302.7) | — | $4.2 | $0.4 | — | $(298.1) | | AOCL | $(5.6) | — | — | — | $0.4 | $(5.2) | | Total Equity | $1,211.6 | $34.4 | $6.7 | $(3.8) | $0.4 | $1,249.3 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Basis of Presentation](index=9&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes the accounting principles and assumptions used in preparing the financial statements - Financial statements are **unaudited** and prepared under GAAP and SEC rules, with management estimates[27](index=27&type=chunk)[28](index=28&type=chunk) - New ASUs (2023-09 on Income Tax Disclosures and 2024-03 on Expense Disaggregation) are expected to impact **disclosures only**, not financial condition, results of operations, or cash flows[30](index=30&type=chunk)[31](index=31&type=chunk) [Note 2. Acquisitions](index=10&type=section&id=Note%202.%20Acquisitions) This note details recent acquisitions, including purchase prices, contingent considerations, and integration activities - Acquired Aerostrat Corp. on August 11, 2025, for a base purchase price of **$15.0 million** plus up to **$5.0 million** in contingent consideration. Aerostrat's operations are included in the Integrated Solutions segment[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - Finalized purchase price adjustments for Triumph Group's Product Support business, acquired March 1, 2024, resulting in a **$2.9 million reduction** from the initial **$725.0 million**. Product Support is reported within the Repair & Engineering segment[36](index=36&type=chunk)[37](index=37&type=chunk) - Integration activities for Product Support include consolidating facility footprint, with **$1.0 million** in expenses recognized for the three months ended August 31, 2025[39](index=39&type=chunk) - Finalized post-closing adjustments for the Trax USA Corp. acquisition (March 2023), with **$4.4 million released** from escrow in Q4 FY2025 and **$5.3 million remaining**. Contingent consideration liability for Trax was **$8.1 million** as of August 31, 2025[41](index=41&type=chunk)[43](index=43&type=chunk) [Note 3. Discontinued Operations](index=14&type=section&id=Note%203.%20Discontinued%20Operations) This note provides information on assets and liabilities related to discontinued business segments - COCO business (Expeditionary Services) reported as **discontinued operations** since fiscal 2018[45](index=45&type=chunk) Discontinued Operations (Millions) | Discontinued Operations | August 31, 2025 (Millions) | May 31, 2025 (Millions) | | :---------------------- | :------------------------- | :---------------------- | | Assets | $5.2 | $6.2 | | Liabilities | $4.9 | $5.8 | [Note 4. Revenue Recognition](index=14&type=section&id=Note%204.%20Revenue%20Recognition) This note explains the company's policies for recognizing revenue, including contract assets and liabilities, and disaggregated sales data - Revenue is recognized when performance obligations are satisfied, either **over time** (cost-to-cost method) or **at a point in time** (product sales upon shipment)[47](index=47&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - No cumulative catch-up adjustments were recognized for the three months ended August 31, 2025, compared to **favorable adjustments of $2.4 million** in the prior year period[67](index=67&type=chunk) Contract Assets & Liabilities (Millions) | Contract Assets & Liabilities | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :---------------------------- | :------------------------- | :---------------------- | :---------------- | | Net Contract Assets | $139.2 | $122.0 | $17.2 | | Current Contract Assets | $146.7 | $140.3 | $6.4 | | Current Deferred Revenue | $(32.3) | $(40.3) | $8.0 | - Remaining performance obligations (firm backlog) totaled approximately **$490 million** as of August 31, 2025, with **75% expected to be recognized** as revenue over the next 12 months[75](index=75&type=chunk) Disaggregation of Revenue (3 Months Ended Aug 31) (Millions) | Disaggregation of Revenue (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :------------------------------------------------ | :-------------- | :-------------- | :------- | | **By Segment & Customer Market:** | | | | | Parts Supply - Commercial | $254.5 | $210.4 | 20.9% | | Parts Supply - Government and defense | $63.3 | $39.3 | 61.1% | | Repair & Engineering - Commercial | $195.7 | $191.2 | 2.4% | | Repair & Engineering - Government and defense | $18.9 | $26.4 | (28.4%) | | Integrated Solutions - Commercial | $72.4 | $70.0 | 3.4% | | Integrated Solutions - Government and defense | $112.6 | $98.9 | 13.9% | | Expeditionary Services - Commercial | $0.7 | $1.3 | (46.2%) | | Expeditionary Services - Government and defense | $21.5 | $24.2 | (11.2%) | | **Consolidated Sales by Geographic Region:** | | | | | U.S./Canada | $519.1 | $473.4 | 9.7% | | Europe/Africa | $99.7 | $108.8 | (8.3%) | | Asia/South Pacific | $89.7 | $64.0 | 40.2% | | Other | $31.1 | $15.5 | 100.6% | | **Total Consolidated Sales** | $739.6 | $661.7 | 11.8% | [Note 5. Restricted Cash](index=22&type=section&id=Note%205.%20Restricted%20Cash) This note details the components and amounts of cash held under restrictions Restricted Cash Component (Millions) | Restricted Cash Component | August 31, 2025 (Millions) | | :------------------------ | :------------------------- | | Acquisition Escrows | $8.3 | | Receivable Securitization | $3.3 | | Total Restricted Cash | $11.6 | [Note 6. Accounts Receivable](index=22&type=section&id=Note%206.%20Accounts%20Receivable) This note breaks down accounts receivable by customer type, including U.S. Government and other customers Accounts Receivable (Millions) | Accounts Receivable | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :------------------ | :------------------------- | :---------------------- | :---------------- | | U.S. Government | $41.7 | $40.0 | $1.7 | | All Other Customers | $321.8 | $314.8 | $7.0 | | Total | $363.5 | $354.8 | $8.7 | [Note 7. Equity](index=22&type=section&id=Note%207.%20Equity) This note provides details on stock-based compensation, share grants, and their impact on equity - Granted **85,605 performance-based** and **64,795 time-based restricted shares** to employees, and **24,178 time-based restricted shares** to directors in July 2025[82](index=82&type=chunk) Stock-Based Compensation (Millions) | Stock-Based Compensation | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | | :----------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Restricted Stock Expense | $4.2 | $4.1 | $0.1 | | Stock Option Expense | $1.1 | $0.9 | $0.2 | | Intrinsic Value of Options Exercised | $4.6 | $0.2 | $4.4 | - **64,000 stock options** were anti-dilutive and excluded from diluted EPS computation for Q1 FY2026[87](index=87&type=chunk) [Note 8. Inventories](index=24&type=section&id=Note%208.%20Inventories) This note categorizes inventory components, including aircraft parts, raw materials, and work-in-process Inventory Category (Millions) | Inventory Category | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :----------------- | :------------------------- | :---------------------- | :---------------- | | Aircraft & Engine Parts | $694.6 | $659.4 | $35.2 | | Raw Materials & Parts | $135.8 | $119.9 | $15.9 | | Work-in-Process | $31.1 | $29.9 | $1.2 | | Total Inventories | $861.5 | $809.2 | $52.3 | [Note 9. Supplemental Cash Flow Information](index=24&type=section&id=Note%209.%20Supplemental%20Cash%20Flow%20Information) This note provides additional details on non-cash investing and financing activities and other cash flow items Supplemental Cash Flow Item (Millions) | Supplemental Cash Flow Item | 3 Months Ended Aug 31, 2025 (Millions) | 3 Months Ended Aug 31, 2024 (Millions) | Change (Millions) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | | Interest Paid | $8.5 | $9.0 | $(0.5) |\ | Income Taxes Paid | $5.6 | $5.2 | $0.4 |\ | Operating Lease Liabilities | $1.6 | $0.8 | $0.8 | [Note 10. Sale of Receivables](index=24&type=section&id=Note%2010.%20Sale%20of%20Receivables) This note describes the company's accounts receivable financing program and related activities - Maintains a Purchase Agreement with Citibank N.A. for the sale of accounts receivable, with a **maximum limit of $150 million**[90](index=90&type=chunk) Receivable Sale Activity (3 Months Ended Aug 31) (Millions) | Receivable Sale Activity (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | Change (Millions) | | :----------------------------------------------- | :-------------- | :-------------- | :---------------- | | Receivables Sold | $49.2 | $50.9 | $(1.7) | | Discounts on Sale | $0.2 | $0.3 | $(0.1) | - As of August 31, 2025, **$21.0 million** of the **$150 million facility** has been utilized, leaving **$129.0 million available**[91](index=91&type=chunk) [Note 11. Financing Arrangements](index=25&type=section&id=Note%2011.%20Financing%20Arrangements) This note details the company's debt structure, credit facilities, and compliance with financial covenants Debt Component (Millions) | Debt Component | August 31, 2025 (Millions) | May 31, 2025 (Millions) | Change (Millions) | | :------------- | :------------------------- | :---------------------- | :---------------- | | Senior Notes | $700.0 | $550.0 | $150.0 | | Revolving Credit Facility | $330.0 | $427.0 | $(97.0) | | Total Long-term Debt | $1,022.1 | $968.0 | $54.1 | - Amended Revolving Credit Facility increased aggregate commitments to **$825.0 million** from **$620.0 million**, with **$485.9 million available** as of August 31, 2025[97](index=97&type=chunk)[99](index=99&type=chunk) - Issued an additional **$150.0 million** aggregate principal amount of **6.75% Senior Notes due 2029** on August 14, 2025, bringing total Senior Notes to **$700.0 million**[103](index=103&type=chunk)[107](index=107&type=chunk) - The company was in **compliance with all financial and other covenants** in its financing agreements as of August 31, 2025[110](index=110&type=chunk) [Note 12. Other Non-current Assets](index=29&type=section&id=Note%2012.%20Other%20Non-current%20Assets) This note provides information on investments in joint ventures and other long-term assets - Holds a **50% ownership interest** in ASAS, providing aviation aftermarket supply chain solutions, with sales to ASAS JV of **$5.0 million** in Q1 FY2026, up from **$1.7 million** in Q1 FY2025[111](index=111&type=chunk)[112](index=112&type=chunk) - Sold its **40% ownership interest** in an Indian joint venture in Q1 FY2025, recognizing a **gain of $2.1 million**[114](index=114&type=chunk) - Holds a **49.9% ownership interest** in xCelle Americas, LLC, providing component repair services, and provided a **$3.3 million loan** to xCelle in March 2025[116](index=116&type=chunk)[117](index=117&type=chunk) [Note 13. Defined Benefit Pension Settlement](index=31&type=section&id=Note%2013.%20Defined%20Benefit%20Pension%20Settlement) This note outlines the settlement of the U.S. defined benefit retirement plan and its financial impact - Settled all future obligations under its frozen U.S. defined benefit retirement plan in Q1 FY2024, resulting in a **non-cash, pre-tax pension settlement charge of $26.7 million** (**$16.1 million after-tax**)[119](index=119&type=chunk) - Remaining surplus plan assets of **$0.8 million** as of August 31, 2025, are expected to be utilized over the next twelve months to fund 401(k) contributions[120](index=120&type=chunk) [Note 14. Accumulated Other Comprehensive Loss](index=31&type=section&id=Note%2014.%20Accumulated%20Other%20Comprehensive%20Loss) This note details the components of accumulated other comprehensive loss, including currency translation adjustments and pension plan impacts AOCL Component (Millions) | AOCL Component | Balance June 1, 2025 (Millions) | Other Comprehensive Income (Millions) | Balance Aug 31, 2025 (Millions) | | :------------- | :------------------------------ | :------------------------------------ | :------------------------------ | | Currency Translation Adjustments | $(2.4) | $0.4 | $(2.0) | | Pension Plans | $(3.2) | — | $(3.2) | | Total AOCL | $(5.6) | $0.4 | $(5.2) | [Note 15. Sale of Landing Gear Overhaul Business](index=31&type=section&id=Note%2015.%20Sale%20of%20Landing%20Gear%20Overhaul%20Business) This note describes the divestiture of the Landing Gear Overhaul business, including proceeds and recognized loss - Divested the LGO business in Q4 FY2025 for **net proceeds of $48.0 million**[124](index=124&type=chunk) - Recognized a **$71.1 million loss on divestiture**, including a **$63.0 million impairment charge** and **$14.6 million goodwill reclassified** to assets held for sale[122](index=122&type=chunk)[161](index=161&type=chunk) - Recognized a **gain of $1.0 million** in Q1 FY2026 for the final resolution of purchase price adjustments[124](index=124&type=chunk) [Note 16. Business Segment Information](index=32&type=section&id=Note%2016.%20Business%20Segment%20Information) This note provides financial data disaggregated by the company's operating segments, including sales, costs, and operating income - AAR CORP. operates in **four segments**: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[125](index=125&type=chunk)[129](index=129&type=chunk) Segment (3 Months Ended Aug 31, 2025) (Millions) | Segment (3 Months Ended Aug 31, 2025) | Sales (Millions) | Cost of Sales (Millions) | SG&A (Millions) | Operating Income (Millions) | | :------------------------------------ | :--------------- | :----------------------- | :-------------- | :-------------------------- | | Parts Supply | $317.8 | $256.5 | $23.3 | $40.9 | | Repair & Engineering | $214.6 | $172.0 | $22.0 | $20.4 | | Integrated Solutions | $185.0 | $159.3 | $16.2 | $9.7 | | Expeditionary Services | $22.2 | $17.6 | $1.6 | $3.0 | | Total Consolidated | $739.6 | $605.4 | $63.1 | $74.0 | Segment (3 Months Ended Aug 31, 2024) (Millions) | Segment (3 Months Ended Aug 31, 2024) | Sales (Millions) | Cost of Sales (Millions) | SG&A (Millions) | Operating Income (Millions) | | :------------------------------------ | :--------------- | :----------------------- | :-------------- | :-------------------------- | | Parts Supply | $249.7 | $199.7 | $20.3 | $30.1 | | Repair & Engineering | $217.6 | $175.0 | $23.1 | $21.1 | | Integrated Solutions | $168.9 | $144.1 | $17.2 | $7.7 | | Expeditionary Services | $25.5 | $25.7 | $1.5 | $(1.7) | | Total Consolidated | $661.7 | $544.5 | $62.1 | $57.2 | Segment Total Assets (Millions) | Segment Total Assets | August 31, 2025 (Millions) | May 31, 2025 (Millions) | | :------------------- | :------------------------- | :---------------------- | | Parts Supply | $875.0 | $818.8 | | Repair & Engineering | $1,166.1 | $1,155.2 | | Integrated Solutions | $660.0 | $620.8 | | Expeditionary Services | $82.6 | $79.0 | | Corporate & Discontinued | $146.0 | $170.8 | | Total Assets | $2,929.7 | $2,844.6 | [Note 17. Legal Proceedings](index=35&type=section&id=Note%2017.%20Legal%20Proceedings) This note details ongoing legal matters, including bankruptcy litigation, performance guarantee claims, and regulatory compliance issues - Russian bankruptcy litigation concluded with a **final $1.8 million judgment** against the company, which it believes is due to a hostile business environment for foreign companies in Russia[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Faces a performance guarantee claim of **at least $32 million** related to the A220 Contract, which the company strongly disputes and believes it has numerous defenses against[142](index=142&type=chunk)[143](index=143&type=chunk) - Resolved FCPA violations with the DoJ and SEC, resulting in a **$55.6 million charge** in Q2 FY2025[147](index=147&type=chunk)[148](index=148&type=chunk) - Convicted in Nepal for public procurement law violations related to previously self-reported FCPA matters, facing a **$0.9 million fine** and **1.5-year prison sentence** (assigned to Mr. Holmes as principal executive), which the company does not intend to pay due to perceived lack of due process[149](index=149&type=chunk)[151](index=151&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed analysis of AAR CORP.'s financial condition, operating results, liquidity, and capital resources for the three months ended August 31, 2025 [General Overview and Outlook](index=40&type=section&id=General%20Overview%20and%20Outlook) This section provides an overview of AAR CORP.'s business segments, recent restructuring, and future market expectations - AAR CORP. operates in **four business segments**: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[153](index=153&type=chunk)[159](index=159&type=chunk) - Executed a restructuring plan in Q1 FY2026, eliminating approximately **60 positions** and recognizing **$1.0 million in severance charges**[154](index=154&type=chunk) - Expects **long-term strength in aviation products and services**, with favorable commercial aftermarket growth trends and continued investment in both commercial and government markets[168](index=168&type=chunk) - Expanding Miami and Oklahoma City airframe maintenance facilities, with completion expected in early to mid-to-late calendar 2026[159](index=159&type=chunk)[160](index=160&type=chunk) [Discussion of Results of Operations](index=43&type=section&id=Discussion%20of%20Results%20of%20Operations) This section analyzes consolidated sales, gross profit, operating expenses, and tax rates for the quarter Financial Metric (3 Months Ended Aug 31) (Millions) | Financial Metric (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :--------------------------------------- | :-------------- | :-------------- | :------- | | Consolidated Sales | $739.6 | $661.7 | 11.8% | | Commercial Sales | $523.3 | $472.9 | 10.7% | | Government and Defense Sales | $216.3 | $188.8 | 14.6% | | Consolidated Gross Profit | $133.7 | $117.2 | 14.1% | | Commercial Gross Profit | $89.5 | $92.8 | (3.6%) | | Government and Defense Gross Profit | $44.2 | $24.4 | 81.1% | | Consolidated Gross Profit Margin | 18.1% | 17.7% | | | Commercial Gross Profit Margin | 17.1% | 19.6% | | | Government and Defense Gross Profit Margin | 20.4% | 12.9% | | - Selling, general, and administrative expenses decreased by **$4.7 million (6.2%)** to **$71.2 million**, primarily due to the settlement of FCPA matters. As a percentage of sales, SG&A decreased to **9.6%** from **11.5%**[173](index=173&type=chunk) - Interest expense remained **consistent at $18.8 million**, reflecting lower interest rates offset by higher average borrowings[174](index=174&type=chunk) - Effective income tax rate decreased to **26.8%** from **27.7%**, primarily due to higher tax benefits from stock compensation[175](index=175&type=chunk) [Operating Segment Results of Operations](index=44&type=section&id=Operating%20Segment%20Results%20of%20Operations) This section presents a detailed breakdown of financial performance for each of AAR CORP.'s operating segments [Parts Supply Segment](index=44&type=section&id=Parts%20Supply%20Segment) This section details the financial performance of the Parts Supply segment, including sales and operating income Parts Supply Segment (3 Months Ended Aug 31) (Millions) | Parts Supply Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $317.8 | $249.7 | 27.3% | | Operating income | $40.9 | $30.1 | 35.9% | | Operating margin | 12.9% | 12.1% | | - Sales growth driven by **23.9% increase** in new parts Distribution and **32.1% increase** in USM activities[176](index=176&type=chunk) [Repair & Engineering Segment](index=44&type=section&id=Repair%20%26%20Engineering%20Segment) This section details the financial performance of the Repair & Engineering segment, including sales and operating income Repair & Engineering Segment (3 Months Ended Aug 31) (Millions) | Repair & Engineering Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :--------------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $214.6 | $217.6 | (1.4%) | | Operating income | $20.4 | $21.1 | (3.3%) | | Operating margin | 9.5% | 9.7% | | - Sales decrease primarily due to the divestiture of the LGO business (contributed **$19.2 million** in prior year sales), partially offset by a **$13.2 million increase** at airframe maintenance facilities[178](index=178&type=chunk) - Operating income and margin decreased due to **lower profitability** in Component Services activities[179](index=179&type=chunk) [Integrated Solutions Segment](index=44&type=section&id=Integrated%20Solutions%20Segment) This section details the financial performance of the Integrated Solutions segment, including sales and operating income Integrated Solutions Segment (3 Months Ended Aug 31) (Millions) | Integrated Solutions Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :--------------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $185.0 | $168.9 | 9.5% | | Operating income | $9.7 | $7.7 | 26.0% | | Operating margin | 5.2% | 4.6% | | - Sales and operating income increases primarily attributable to **higher government program activity** and a **favorable mix of products and services**[180](index=180&type=chunk)[182](index=182&type=chunk) - No cumulative catch-up adjustments were recognized in Q1 FY2026, compared to **favorable adjustments of $2.4 million** in the prior year quarter[181](index=181&type=chunk) [Expeditionary Services Segment](index=46&type=section&id=Expeditionary%20Services%20Segment) This section details the financial performance of the Expeditionary Services segment, including sales and operating income Expeditionary Services Segment (3 Months Ended Aug 31) (Millions) | Expeditionary Services Segment (3 Months Ended Aug 31) | 2025 (Millions) | 2024 (Millions) | % Change | | :----------------------------------------------------- | :-------------- | :-------------- | :------- | | Third-party sales | $22.2 | $25.5 | (12.9%) | | Operating income (loss) | $3.0 | $(1.7) | 276.5% | | Operating margin | 13.5% | (6.7%) | | - Sales decrease primarily due to the termination of the Next Generation Pallet contract in Q1 FY2025 (contributed **$9.5 million** in prior year sales), partially offset by growth in other product lines[183](index=183&type=chunk) - Operating income and margin significantly improved due to the **absence of the prior year's $12.7 million equipment and inventory expensing** related to the contract termination[184](index=184&type=chunk) [Liquidity, Capital Resources and Financial Position](index=46&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Financial%20Position) This section assesses the company's working capital, cash position, credit facilities, and cash flow activities - Working capital was **$1,028.4 million** and cash was **$80.0 million** as of August 31, 2025, providing **ample liquidity** for the foreseeable future[186](index=186&type=chunk) - Amended Revolving Credit Facility has **$485.9 million available**, and the accounts receivable financing program has **$129.0 million available**[189](index=189&type=chunk)[195](index=195&type=chunk) - Net cash used in operating activities increased to **$44.9 million** (from **$18.6 million** in prior year) primarily due to increased inventory investments[200](index=200&type=chunk) - Net cash provided by financing activities was **$51.1 million** (compared to **$9.1 million used** in prior year), driven by incremental borrowings to fund the Aerostrat acquisition and other investments[202](index=202&type=chunk) - Net cash used in investing activities increased to **$23.8 million** (from **$5.3 million** in prior year) primarily due to the Aerostrat acquisition[201](index=201&type=chunk) - No stock repurchases were made in Q1 FY2026 under the **$150 million stock repurchase program**, with **$107.5 million utilized** since inception[199](index=199&type=chunk) [Critical Accounting Policies and Significant Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Estimates) This section discusses the company's critical accounting policies and significant estimates, noting no material changes - No **significant changes** to the application of critical accounting policies during the first quarter of fiscal 2026[203](index=203&type=chunk) [Forward-Looking Statements](index=50&type=section&id=Forward-Looking%20Statements) This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains **forward-looking statements** subject to various risks and uncertainties, including those related to the commercial aviation industry, government contracts, acquisitions, and regulatory compliance[204](index=204&type=chunk)[205](index=205&type=chunk)[207](index=207&type=chunk) - The company assumes **no obligation to update** any forward-looking statements[208](index=208&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) AAR CORP.'s market risk exposure includes fluctuating interest rates, foreign exchange rates, and credit losses on accounts receivable, with no material impact from a hypothetical 10% U.S. dollar devaluation or significant changes in interest rate risk during the quarter - Market risk exposure includes fluctuating interest rates, foreign exchange rates, and credit losses on accounts receivable[209](index=209&type=chunk) - A hypothetical **10% devaluation of the U.S. dollar** would not have a **material impact** on financial position or continuing operations for the quarter ended August 31, 2025[210](index=210&type=chunk) - No **significant changes** in interest rate risk during the quarter ended August 31, 2025[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of August 31, 2025, with no material changes to internal control over financial reporting during the quarter - CEO and CFO concluded that disclosure controls and procedures were **effective** as of August 31, 2025, providing **reasonable assurance** of timely and accurate reporting[212](index=212&type=chunk) - No **material changes** in internal control over financial reporting occurred during the quarter ended August 31, 2025[213](index=213&type=chunk) PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, other information including executive trading plans, and a list of exhibits [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the legal proceedings detailed in Note 17, confirming no other material pending legal proceedings - Incorporates by reference the legal proceedings detailed in Note 17, confirming **no other material pending legal proceedings**[214](index=214&type=chunk) [Item 1A. Risk Factors](index=53&type=page&id=Item%201A.%20Risk%20Factors) There have been no material changes in risk factors from the Annual Report on Form 10-K for the fiscal year ended May 31, 2025 - No **material changes** in risk factors from the Annual Report on Form 10-K for the fiscal year ended May 31, 2025[215](index=215&type=chunk) [Item 5. Other Information](index=53&type=section&id=Item%205.%20Other%20Information) CEO John M. Holmes adopted a Rule 10b5-1 trading plan for potential stock sales, with no other directors or officers initiating or modifying similar arrangements during the quarter - CEO John M. Holmes adopted a Rule 10b5-1 trading plan on August 6, 2025, for the potential sale of up to **61,539 shares** of common stock between November 5, 2025, and February 2, 2026[216](index=216&type=chunk) - No other directors or officers adopted, modified, or terminated trading arrangements during the three months ended August 31, 2025[217](index=217&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including material contracts, Section 302 and 906 certifications, and Interactive Data Files (Inline XBRL) - Lists exhibits including material contracts (incentive plans, stock agreements), Section 302 and 906 certifications, and Interactive Data Files (Inline XBRL)[219](index=219&type=chunk)

Financial Performance Highlights - Adjusted Earnings Per Share (EPS) increased by 27%, from $0.85 in Q1 FY25 to $1.08 in Q1 FY26 [16] - Adjusted sales increased by 13%, from $652.2 million in Q1 FY25 to $739.6 million in Q1 FY26 [16] - Adjusted EBITDA increased by 18%, from $73.7 million in Q1 FY25 to $86.7 million in Q1 FY26 [16] - The company delivered 17% adjusted organic sales growth with margin expansion [9] Segment Performance - Parts Supply sales increased by 27%, from $249.7 million in Q1 FY25 to $317.8 million in Q1 FY26 [16] - Repair & Engineering sales decreased by 1%, from $217.6 million in Q1 FY25 to $214.6 million in Q1 FY26, but organic growth excluding Landing Gear was 8% [16, 25] - Integrated Solutions sales increased by 10%, from $168.9 million in Q1 FY25 to $185.0 million in Q1 FY26 [16] Strategic Initiatives and Outlook - The company secured a multi-year exclusive defense agreement with AmSafe Bridport [14] - The company acquired Aerostrat, a long-range maintenance planning software company [13, 14] - The company expects sales growth of 7% - 10% and an adjusted operating margin of 9.6% - 10.0% for Q2 2026 [37]

[First Quarter Fiscal Year 2026 Highlights](index=1&type=section&id=First%20Quarter%20Fiscal%20Year%202026%20Highlights) AAR reported strong Q1 FY2026 financial performance with significant organic sales and adjusted EBITDA growth, driven by strategic investments [Q1 FY2026 Financial Performance Overview](index=1&type=section&id=Q1%20FY2026%20Financial%20Performance%20Overview) AAR reported a strong start to fiscal year 2026, achieving significant growth across all segments, with adjusted sales increasing **17%** organically, primarily driven by a **27%** rise in the Parts Supply segment, leading to an **18%** increase in adjusted EBITDA and an expansion of adjusted EBITDA margins to **11.7%** - Adjusted sales were up **17%** organically, largely driven by Parts Supply which was up **27%** in the quarter[3](index=3&type=chunk) Key Financial Metrics | Metric | Value | | :-------------------- | :------ | | Sales | $740 million | | Sales Increase (YoY) | 12% | | GAAP EPS | $0.95 | | Adjusted Diluted EPS | $1.08 | | Adjusted Diluted EPS Increase (YoY) | 27% | | GAAP Net Income | $34 million | | Adjusted EBITDA | $87 million | | Adjusted EBITDA Increase (YoY) | 18% | | Adjusted EBITDA Margin | 11.7% | | Adjusted EBITDA Margin (Q1 FY2025) | 11.3% | [Strategic Outlook and Investments](index=2&type=section&id=Strategic%20Outlook%20and%20Investments) AAR made strategic investments, particularly in supporting the rapid growth of its Parts Supply segment, and acquired Aerostrat to enhance its Trax software capabilities, anticipating continued sales growth, positive operating cash flows, and further margin improvement - Investments were made across the Company with a particular focus on supporting the rapid growth in Parts Supply[5](index=5&type=chunk) - Acquired Aerostrat, adding to Trax software capabilities, with an expectation to generate **positive operating cash flows** over the remainder of the fiscal year[5](index=5&type=chunk) - Demand for Parts Supply offerings remains **very high**, supported by inventory investments, Repair & Engineering hangars have a **multi-year backlog**, and new capacity coming online in 2026 is **already sold out**[5](index=5&type=chunk) [Recent Business Developments](index=2&type=section&id=Recent%20Business%20Developments) AAR expanded its market presence through the Aerostrat acquisition and secured new multi-year defense and DLA contracts [Acquisitions and Partnerships](index=2&type=section&id=Acquisitions%20and%20Partnerships) AAR completed the acquisition of Aerostrat, a long-range maintenance planning software company, for **$15 million** plus potential contingent consideration, thereby enhancing its Trax solutions, and expanded its existing Trax agreement with JetBlue Airways - Acquired Aerostrat, a leading long-range maintenance planning software company, for a purchase price of **$15 million** plus contingent consideration of up to **$5 million**, enhancing Trax solutions[6](index=6&type=chunk) - Expanded Trax's agreement with JetBlue Airways to include eMobility and its cloud hosting solution[7](index=7&type=chunk) [New Contracts and Agreements](index=2&type=section&id=New%20Contracts%20and%20Agreements) AAR secured a multi-year exclusive defense agreement with AmSafe Bridport for product distribution across specific military platforms, and was subsequently awarded an indefinite-delivery/indefinite-quantity (IDIQ) contract with the Defense Logistics Agency (DLA) Troop Support for up to **$85 million** - Secured multi-year exclusive defense agreement with AmSafe Bridport to distribute their product lines across the KC-46 and C-40 platforms to the global defense and military aftermarket[7](index=7&type=chunk) - Awarded indefinite-delivery/indefinite-quantity contract with the Defense Logistics Agency Troop Support for up to **$85 million** to provide specialized shipping and storage containers, shelters, and accessories[7](index=7&type=chunk) [Detailed First Quarter Fiscal Year 2026 Results](index=3&type=section&id=Detailed%20First%20Quarter%20Fiscal%20Year%202026%20Results) Consolidated sales and net income significantly increased in Q1 FY2026, driven by strong Parts Supply segment performance and improved operating margins [Consolidated Financial Performance](index=3&type=section&id=Consolidated%20Financial%20Performance) Consolidated sales for Q1 FY2026 increased **12%** to **$739.6 million**, driven by double-digit growth in both aftermarket parts trading and new parts distribution within the Parts Supply segment, with net income more than doubling to **$34.4 million** and adjusted diluted EPS rising **27%** to **$1.08**, while operating margins significantly improved and cash flow used in operating activities increased due to investments Consolidated Sales Performance | Metric | Q1 FY2026 (Millions) | Q1 FY2025 (Millions) | Change (%) | | :-------------------------- | :------------------- | :------------------- | :--------- | | Consolidated Sales | $739.6 | $661.7 | 12% | | Commercial Sales Increase | $50.4 | N/A | 11% | | Government Sales Increase | N/A | N/A | 15% | | Commercial Sales % of Total | 71% | 71% | 0% | Net Income and EPS | Metric | Q1 FY2026 | Q1 FY2025 | Change (%) | | :-------------------- | :--------- | :--------- | :--------- | | Net Income | $34.4 million | $18.0 million | 91.1% | | GAAP Diluted EPS | $0.95 | $0.50 | 90% | | Adjusted Diluted EPS | $1.08 | $0.85 | 27% | Operating Margins | Metric | Q1 FY2026 | Q1 FY2025 | Change (pp) | | :-------------------- | :--------- | :--------- | :---------- | | Operating Margin | 8.8% | 6.6% | +2.2 | | Adjusted Operating Margin | 9.7% | 9.1% | +0.6 | Cash Flow and Net Debt Summary | Metric | Q1 FY2026 (Millions) | Q1 FY2025 (Millions) | | :-------------------------------- | :------------------- | :------------------- | | Cash flow used in operating activities | $(44.9) | $(18.6) | | Net debt (as of Aug 31, 2025) | $950.0 | N/A | | Net leverage (as of Aug 31, 2025) | 2.82x | N/A | [Segment Performance](index=9&type=section&id=Segment%20Performance) The Parts Supply segment was the primary growth driver, with sales increasing **27.3%** and operating income rising **35.9%**, while Integrated Solutions also showed strong sales and operating income growth, Repair & Engineering experienced a slight sales decrease but maintained solid operating income, and Expeditionary Services moved from an operating loss to a profit Segment Sales Performance | Segment | Q1 FY2026 Sales (Millions) | Q1 FY2025 Sales (Millions) | Change (%) | | :-------------------- | :------------------------- | :------------------------- | :--------- | | Parts Supply | $317.8 | $249.7 | 27.3% | | Repair & Engineering | $214.6 | $217.6 | -1.4% | | Integrated Solutions | $185.0 | $168.9 | 9.5% | | Expeditionary Services | $22.2 | $25.5 | -12.9% | | **Total** | **$739.6** | **$661.7** | **11.8%** | Segment Operating Income | Segment | Q1 FY2026 Operating Income (Millions) | Q1 FY2025 Operating Income (Millions) | Change (%) | | :-------------------- | :---------------------------------- | :---------------------------------- | :--------- | | Parts Supply | $40.9 | $30.1 | 35.9% | | Repair & Engineering | $20.4 | $21.1 | -3.3% | | Integrated Solutions | $9.7 | $7.7 | 26.0% | | Expeditionary Services | $3.0 | $(1.7) | N/A (from loss to profit) | | **Total Segment Op. Income** | **$74.0** | **$57.2** | **29.4%** | [Financial Statements](index=6&type=section&id=Financial%20Statements) The financial statements reveal increased Q1 FY2026 profitability, growth in assets and debt, and higher cash usage for operations and investments [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The condensed consolidated statements of income for Q1 FY2026 show a substantial increase in net income and diluted earnings per share compared to the prior year, driven by higher sales and improved gross and operating profits Condensed Consolidated Statements of Income | Metric (Millions) | August 31, 2025 | August 31, 2024 | | :-------------------------- | :---------------- | :---------------- | | Sales | $739.6 | $661.7 | | Cost of sales | $605.9 | $544.5 | | Gross profit | $133.7 | $117.2 | | Operating income | $64.9 | $43.4 | | Income before income taxes | $47.0 | $24.9 | | Net income | $34.4 | $18.0 | | Diluted EPS | $0.95 | $0.50 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of August 31, 2025, AAR's balance sheet reflects an increase in total assets, primarily due to growth in inventories and goodwill/intangible assets, with total liabilities also rising, mainly driven by an increase in long-term debt, while total equity saw a corresponding increase Condensed Consolidated Balance Sheets | Metric (Millions) | August 31, 2025 | May 31, 2025 | | :-------------------------- | :---------------- | :---------------- | | Total current assets | $1,566.9 | $1,510.6 | | Inventories, net | $861.5 | $809.2 | | Goodwill and intangible assets, net | $769.0 | $750.4 | | Total assets | $2,929.7 | $2,844.6 | | Total current liabilities | $538.5 | $554.7 | | Long-term debt | $1,022.1 | $968.0 | | Total liabilities | $1,680.4 | $1,633.0 | | Equity | $1,249.3 | $1,211.6 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) AAR reported increased cash used in operating activities for Q1 FY2026, primarily due to higher inventory investments and changes in accounts payable and accrued liabilities, with cash used in investing activities also increasing, largely driven by acquisitions, though net cash provided by financing activities helped mitigate the overall decrease in cash and cash equivalents Condensed Consolidated Statements of Cash Flows | Metric (Millions) | August 31, 2025 | August 31, 2024 | | :-------------------------------------- | :---------------- | :---------------- | | Net cash used in operating activities | $(44.9) | $(18.6) | | Net cash used in investing activities | $(23.8) | $(5.3) | | Net cash provided by (used in) financing activities | $51.1 | $(9.1) | | Decrease in cash, cash equivalents, and restricted cash | $(17.6) | $(33.0) | | Cash, cash equivalents, and restricted cash at end of period | $91.6 | $63.1 | - Key drivers for increased cash used in operating activities include a **$(51.8) million** change in inventories (vs. **$(14.8) million** in prior year) and a **$(16.7) million** change in accounts payable and accrued liabilities (vs. **$8.5 million** in prior year)[26](index=26&type=chunk) - Cash used in investing activities was significantly impacted by **$(11.9) million** for acquisitions, net of cash acquired (vs. **$2.9 million** in prior year)[26](index=26&type=chunk) - Financing activities were boosted by **$153.0 million** in proceeds from long-term borrowings[26](index=26&type=chunk) [Non-GAAP Financial Measures and Reconciliations](index=9&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section explains and reconciles non-GAAP measures, demonstrating improved adjusted profitability, sales growth, and EBITDA, alongside cash flow and net debt adjustments [Explanation of Non-GAAP Measures](index=9&type=section&id=Explanation%20of%20Non-GAAP%20Measures) AAR utilizes various non-GAAP financial measures, including adjusted net income, adjusted diluted EPS, adjusted sales, organic sales growth, adjusted operating margin, adjusted cash flow from operating activities, adjusted EBITDA, adjusted EBITDA margin, net debt, and net leverage, to provide investors with a clearer view of the company's core operating performance, cash flows, and leverage by excluding items not indicative of ongoing activities - Non-GAAP financial measures are used to illustrate core operating performance, cash flows, and leverage, unaffected by certain items not indicative of ongoing and core operating activities[28](index=28&type=chunk) - Adjustments include costs related to U.S. Foreign Corrupt Practices Act (FCPA) matters, expenses from recent acquisition activity (professional fees, amortization, integration, contingent consideration), legal judgments, contract termination costs/benefits, and losses from business exits[29](index=29&type=chunk) - Adjusted EBITDA is defined as net income before interest, other income/expense, income taxes, depreciation and amortization, stock-based compensation, and unusual items like business divestitures/acquisitions, FCPA costs, certain legal judgments, and significant customer contract terminations[30](index=30&type=chunk) [Adjusted Net Income and EPS Reconciliation](index=10&type=section&id=Adjusted%20Net%20Income%20and%20EPS%20Reconciliation) AAR's adjusted net income for Q1 FY2026 increased to **$39.0 million** from **$30.3 million** in Q1 FY2025, and adjusted diluted EPS rose to **$1.08** from **$0.85**, with key adjustments including acquisition, integration, and amortization expenses, and the absence of FCPA investigation and contract termination costs present in the prior year Adjusted Net Income Reconciliation | Metric (Millions) | August 31, 2025 | August 31, 2024 | | :-------------------------------------- | :---------------- | :---------------- | | Net income (GAAP) | $34.4 | $18.0 | | Acquisition, integration, and amortization expenses | $6.4 | $9.0 | | Severance charges | $1.0 | –– | | Gain related to sale of business/joint venture, net | $(0.7) | $(1.3) | | Government COVID-related subsidy liability reversal | $(0.7) | –– | | FCPA investigation costs | –– | $5.0 | | Contract termination costs | –– | $3.2 | | Tax effect on adjustments | $(1.4) | $(3.6) | | **Adjusted net income** | **$39.0** | **$30.3** | Adjusted Diluted EPS Reconciliation | Metric | August 31, 2025 | August 31, 2024 | | :-------------------------------------- | :---------------- | :---------------- | | Diluted earnings per share (GAAP) | $0.95 | $0.50 | | Acquisition, integration, and amortization expenses | $0.18 | $0.25 | | Severance charges | $0.03 | –– | | Gain related to sale of business/joint venture | $(0.02) | $(0.03) | | Government COVID-related subsidy liability reversal | $(0.02) | –– | | FCPA investigation costs | –– | $0.14 | | Contract termination costs | –– | $0.09 | | Tax effect on adjustments | $(0.04) | $(0.10) | | **Adjusted diluted earnings per share** | **$1.08** | **$0.85** | [Adjusted Operating Margin and Sales Growth Reconciliation](index=11&type=section&id=Adjusted%20Operating%20Margin%20and%20Sales%20Growth%20Reconciliation) AAR's adjusted operating margin for Q1 FY2026 improved to **9.7%** from **9.1%** in the prior year, with adjusted organic sales growth for the quarter at **16.8%**, significantly higher than the GAAP sales growth of **11.8%**, primarily due to the impact of the Landing Gear Overhaul divestiture Adjusted Operating Margin Reconciliation | Metric | August 31, 2025 | August 31, 2024 | | :-------------------- | :---------------- | :---------------- | | Operating income (GAAP) | $64.9 | $43.4 | | Adjusted operating income | $71.6 | $59.2 | | Operating margin (GAAP) | 8.8% | 6.6% | | Adjusted operating margin | 9.7% | 9.1% | Adjusted Sales Growth Reconciliation | Metric | Value | | :-------------------------- | :------ | | GAAP sales growth | 11.8% | | Impact of Landing Gear Overhaul divestiture | 3.3% | | Organic sales growth | 15.1% | | Adjusted sales growth | 13.4% | | Impact of Landing Gear Overhaul divestiture | 3.4% | | **Adjusted organic sales growth** | **16.8%** | [Adjusted Cash Flows from Operating Activities Reconciliation](index=11&type=section&id=Adjusted%20Cash%20Flows%20from%20Operating%20Activities%20Reconciliation) Adjusted cash flows used in operating activities for Q1 FY2026 were **$(47.9) million**, an increase from **$(33.9) million** in Q1 FY2025, after accounting for the net impact of amounts outstanding on the accounts receivable financing program Adjusted Operating Cash Flows Reconciliation | Metric (Millions) | August 31, 2025 | August 31, 2024 | | :-------------------------------------- | :---------------- | :---------------- | | Cash flows used in operating activities (GAAP) | $(44.9) | $(18.6) | | Amounts outstanding on accounts receivable financing program: Beginning of period | 21.3 | 13.7 | | Amounts outstanding on accounts receivable financing program: End of period | $(24.3) | $(29.0) | | **Adjusted cash flows used in operating activities** | **$(47.9)** | **$(33.9)** | [Adjusted EBITDA and Net Debt Reconciliation](index=12&type=section&id=Adjusted%20EBITDA%20and%20Net%20Debt%20Reconciliation) Adjusted EBITDA for Q1 FY2026 increased to **$86.7 million** from **$73.7 million** in Q1 FY2025, with the adjusted EBITDA margin expanding to **11.7%**, while net debt as of August 31, 2025, stood at **$950.0 million**, resulting in a net debt to Adjusted EBITDA ratio of **2.82x** for the trailing twelve months Adjusted EBITDA Reconciliation | Metric (Millions) | August 31, 2025 | August 31, 2024 | | :-------------------------------------- | :---------------- | :---------------- | | Net income (GAAP) | $34.4 | $18.0 | | Income tax expense | $12.6 | $6.9 | | Interest expense, net | $18.5 | $18.3 | | Depreciation and amortization | $13.8 | $13.5 | | Acquisition and integration expenses | $2.4 | $5.0 | | FCPA settlement and investigation costs | –– | $5.0 | | Stock-based compensation | $5.3 | $5.0 | | **Adjusted EBITDA** | **$86.7** | **$73.7** | Adjusted EBITDA Margin | Metric | August 31, 2025 | August 31, 2024 | | :-------------------- | :---------------- | :---------------- | | Net income margin | 4.7% | 2.7% | | Adjusted EBITDA margin | 11.7% | 11.3% | Net Debt Calculation | Metric (Millions) | August 31, 2025 | August 31, 2024 | | :-------------------- | :---------------- | :---------------- | | Total debt | $1,030.0 | $992.0 | | Less: Cash and cash equivalents | $(80.0) | $(49.3) | | **Net debt** | **$950.0** | **$942.7** | Net Debt to Adjusted EBITDA Ratio | Metric | Value | | :-------------------------------------- | :------ | | Adjusted EBITDA for the twelve months ended August 31, 2025 | $337.2 million | | Net debt at August 31, 2025 | $950.0 million | | **Net debt to Adjusted EBITDA** | **2.82** | [Company Information and Forward-Looking Statements](index=4&type=section&id=Company%20Information%20and%20Forward-Looking%20Statements) This section provides conference call details, an overview of AAR's global aerospace and defense business, and outlines forward-looking statements with associated risk factors [Conference Call Information](index=4&type=section&id=Conference%20Call%20Information) AAR hosted a conference call on September 23, 2025, to discuss its Q1 FY2026 results, making a listen-only webcast and slides available, along with a registration process for phone participants, and a replay of the call will be accessible for approximately one year - A conference call was held on Tuesday, September 23, 2025, at 4 p.m. Central time to discuss the results[13](index=13&type=chunk) - A listen-only webcast and slides were accessible online, with phone participation requiring prior registration[13](index=13&type=chunk)[15](index=15&type=chunk) - A replay of the conference call will be available for on-demand listening for approximately one year[14](index=14&type=chunk) [About AAR](index=4&type=section&id=About%20AAR) AAR is a global aerospace and defense aftermarket solutions company, headquartered in the Chicago area, with operations spanning over **20** countries, serving both commercial and government customers through its four distinct operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services - AAR is a global aerospace and defense aftermarket solutions company[16](index=16&type=chunk) - Headquartered in the Chicago area, with operations in over **20** countries[16](index=16&type=chunk) - Supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[16](index=16&type=chunk) [Forward-Looking Statements and Risk Factors](index=5&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) The press release includes forward-looking statements that reflect management's expectations regarding future conditions, such as continued market demand, business growth, acquisition benefits, operational expansion, margin improvement, and financial performance, which are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements reflect management's expectations about future conditions, including continued demand, market position, anticipated business relationships, acquisition contributions, capability expansion, margin improvement, sales growth, earnings, debt management, and capital allocation[17](index=17&type=chunk) - These statements are subject to risks and uncertainties that could cause actual results to differ materially, such as factors affecting the commercial aviation industry, adverse events in aviation, reduction in U.S. government sales, cost overruns, nonperformance by subcontractors, and inability to integrate acquisitions effectively[19](index=19&type=chunk) - Additional risks include financial, operational, and legal risks from international operations, competition, cyber threats, capital expenditure needs, intellectual property restrictions, and compliance with laws and regulations[19](index=19&type=chunk)

Group 1 - The company AAR (NYSE:AIR) reported quarterly results that exceeded Wall Street expectations [4] - Adjusted earnings were $1.08 per share, surpassing analysts' forecast of $0.98 [4] - Revenue reached $740 million, compared to estimates of $689 million [4]