AAR(AIR) - 2025 Q4 - Annual Results

Executive Summary & Fiscal Year 2025 Highlights AAR's strong financial performance and strategic achievements for Q4 and full fiscal year 2025 are summarized Fourth Quarter Fiscal Year 2025 Highlights AAR reported strong Q4 FY2025 results with double-digit sales and earnings growth, driven by robust demand Q4 FY2025 Key Financial Highlights (YoY Change) | Metric | Q4 FY2025 | Change vs. Q4 FY2024 | | :-------------------- | :---------- | :------------------- | | Sales | $755 million | +15% | | GAAP EPS | $0.95 | - | | Adjusted diluted EPS | $1.16 | +32% | | GAAP Net income | $34 million | - | | Adjusted EBITDA | $91 million | +19% | | Adjusted EBITDA margin | 12.4% | +0.8 percentage points (from 11.6%) | - Adjusted sales were up 12% organically due to strong demand across both commercial and government end-markets[5] - New parts Distribution activities led with over 20% organic increase in sales, driven by market growth and market share gains[5] Fiscal Year 2025 Highlights AAR achieved record FY2025 sales and profitability, advancing strategic objectives and reducing net leverage FY2025 Key Financial Highlights (YoY Change) | Metric | FY2025 | Change vs. FY2024 | | :-------------------- | :---------- | :------------------- | | Sales | $2.8 billion | +20% | | GAAP EPS | $0.35 | - | | Adjusted diluted EPS | $3.91 | +17% | | GAAP Net income | $13 million | - | | Adjusted EBITDA | $324 million | +34% | | Adjusted EBITDA margin | 11.8% | +1.4 percentage points (from 10.4%) | - Substantially completed the integration of the Product Support acquisition and continued to optimize the portfolio with the divestiture of the Landing Gear Overhaul business[3] - Net leverage reduced to 2.72x by the end of the fiscal year[3] Recent Business Updates This section details AAR's recent new business wins and portfolio optimization efforts New Business Wins AAR secured new business, including Trax software implementations, a U.S. Navy contract, and a DLA alliance - Implementation of Trax's eMRO and eMobility solutions across Delta TechOps line maintenance network[8] - License agreements for Trax software with Amerijet International Airlines and SIA Engineering Company's heavy maintenance facility in Malaysia[8] - Joint venture with KIRA Aviation Services awarded an E-6B Mercury pilot training contract from the U.S. Navy[8] - Signed a new parts Distribution Supply Chain Alliance charter with the U.S. Defense Logistics Agency (DLA)[8] Portfolio Optimization AAR completed Product Support acquisition integration and divested its Landing Gear Overhaul business for $48 million - Substantially completed the integration and site consolidation of the Product Support acquisition[8] - Completed the sale of the Landing Gear Overhaul business for $48 million[8] Financial Results - Fourth Quarter Fiscal Year 2025 This section details AAR's consolidated financial performance for the fourth quarter of fiscal year 2025 Consolidated Sales Performance Consolidated sales increased 15% to $754.5 million, driven by strong demand and a significant asset sale Q4 Sales Performance (YoY) | Metric | Q4 FY2025 (Millions) | Q4 FY2024 (Millions) | Change | | :-------------------------- | :------------------- | :------------------- | :----- | | Consolidated Sales | $754.5 | $656.5 | +15% | | Commercial Customer Sales | +$56.5 | - | +12% | | Government Customer Sales | - | - | +21% | - Sales in Q4 FY2025 included $18.7 million from the sale of certain rotable assets to a significant regional airline customer[9] - Commercial customers represented 69% of consolidated sales in Q4 FY2025, down from 70% in the prior year quarter[9] Net Income and EPS Net income rose to $34.0 million, with GAAP EPS of $0.95 and adjusted diluted EPS of $1.16 Q4 Net Income and EPS (YoY) | Metric | Q4 FY2025 | Q4 FY2024 | | :-------------------- | :---------- | :---------- | | Net income | $34.0 million | $9.1 million | | GAAP diluted EPS | $0.95 | $0.26 | | Adjusted diluted EPS | $1.16 | $0.88 | Operating Expenses and Margins Operating expenses decreased, improving operating margins to 9.7% and adjusted operating margin to 10.5% Q4 Operating Expenses (YoY) | Expense Category | Q4 FY2025 (Millions) | Q4 FY2024 (Millions) | | :------------------------------------ | :------------------- | :------------------- | | Selling, general, and administrative | $77.4 | $94.8 | | Acquisition, amortization, integration | $0.3 | $17.1 | Q4 Operating Margins (YoY) | Margin Type | Q4 FY2025 | Q4 FY2024 | | :-------------------- | :-------- | :-------- | | Operating margins | 9.7% | 5.0% | | Adjusted operating margin | 10.5% | 9.3% | - Adjusted operating margin increased primarily due to strong growth and favorable mix in Parts Supply[12] Cash Flow and Leverage Operating cash flow increased to $51.4 million, reducing net debt to $880.5 million and leverage to 2.72x Q4 Cash Flow and Leverage | Metric | Q4 FY2025 (Millions) | Q4 FY2024 (Millions) | | :------------------------------------ | :------------------- | :------------------- | | Cash flow from operating activities | $51.4 | $24.5 | | Adjusted cash flow from operating activities (excluding AR financing) | $50.3 | - | | Net debt (as of May 31, 2025) | $880.5 | - | | Net leverage (as of May 31, 2025) | 2.72x | - | - Net leverage decreased from 3.58x to 2.72x since the Product Support acquisition[15] Financial Results - Fiscal Year 2025 This section details AAR's consolidated financial performance for the full fiscal year 2025 Consolidated Sales Performance FY2025 consolidated sales reached $2.8 billion, a 20% increase, driven by acquisition and parts distribution FY2025 Sales Performance (YoY) | Metric | FY2025 | FY2024 | | :-------------------------- | :---------- | :---------- | | Consolidated Sales | $2.8 billion | $2,318.9 million | | YoY Growth | +20% | - | | Commercial Sales % of Total | 71% | 71% | - Sales growth resulted from the Product Support acquisition and increased volumes in new parts distribution activities[15] Operating Margins Operating margins improved to 6.7% for FY2025, with adjusted operating margin increasing to 9.6% FY2025 Operating Margins (YoY) | Margin Type | FY2025 | FY2024 | | :-------------------- | :-------- | :-------- | | Operating margins | 6.7% | 5.6% | | Adjusted operating margin | 9.6% | 8.3% | - Improved adjusted margins were primarily driven by the favorable contribution from the Product Support business and growth in Parts Supply[16] Net Income and EPS FY2025 net income was $12.5 million ($0.35 GAAP EPS), impacted by charges; adjusted EPS rose to $3.91 FY2025 Net Income and EPS (YoY) | Metric | FY2025 | FY2024 | | :-------------------- | :---------- | :---------- | | Net income | $12.5 million | $46.3 million | | GAAP diluted EPS | $0.35 | $1.29 | | Adjusted diluted EPS | $3.91 | $3.33 | - FY2025 results included after-tax charges of $115.0 million associated with the sale of the Landing Gear Overhaul business and FCPA settlement and related costs[17] Cash Flow Cash flow from operating activities for FY2025 was $36.1 million, or $28.5 million excluding AR financing FY2025 Cash Flow from Operating Activities | Metric | FY2025 (Millions) | | :--------------------------------------- | :---------------- | | Cash flow provided by operating activities | $36.1 | | Excluding accounts receivable financing program | $28.5 | Fiscal Year 2026 Outlook This section outlines AAR's strategic expectations and growth drivers for fiscal year 2026 - Expects to continue to gain market share in Parts Supply and expand both capabilities and footprint in Repair & Engineering[19] - Expects Trax to continue its growth trajectory by winning more business and upgrading existing customers to the latest offerings[19] - Remains focused on converting a large pipeline of government opportunities to new business wins[19] - Anticipates driving further growth and margin expansion in fiscal year 2026[19] Company Information This section provides an overview of AAR's business and details for the conference call About AAR AAR is a global aerospace and defense aftermarket solutions company serving commercial and government customers - AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries[22] - Supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[22] Conference Call Details A conference call to discuss results was held on July 16, 2025, with webcast and replay options - A conference call to discuss the results was held on Wednesday, July 16, 2025, at 4 p.m. Central time[20] - A listen-only webcast and slides were accessible online, with participants able to join via phone by registering[20] - A replay of the conference call will be available for on-demand listening for approximately one year[21] Forward-Looking Statements This section outlines forward-looking statements and associated risks regarding AAR's future performance - This press release contains forward-looking statements reflecting management's expectations about future conditions, including demand, market position, business relationships, acquisitions, margin improvement, sales growth, earnings, debt management, and capital allocation[24] - Forward-looking statements are based on beliefs, assumptions, and estimates, and are subject to risks and uncertainties that could cause actual results to differ materially[26] - Risks include factors affecting the commercial aviation industry, government sales, cost overruns, competition, international operations, inability to integrate acquisitions, cyber threats, and regulatory non-compliance[26] Consolidated Financial Statements This section presents AAR's condensed consolidated statements of income, balance sheets, and cash flows Condensed Consolidated Statements of Income The statements detail AAR's Q4 and FY2025 financial performance, including sales, gross profit, and net income Condensed Consolidated Statements of Income (Millions, except per share data) | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------------------- | :-------- | :-------- | :------- | :------- | | Sales | $754.5 | $656.5 | $2,780.5 | $2,318.9 | | Cost of sales | 604.3 | 529.2 | 2,252.8 | 1,876.6 | | Gross profit | 150.2 | 127.3 | 527.7 | 442.3 | | Operating income | 73.0 | 32.6 | 185.2 | 129.2 | | Net income | $34.0 | $9.1 | $12.5 | $46.3 | | Earnings per share – Diluted | $0.95 | $0.26 | $0.35 | $1.29 | Condensed Consolidated Balance Sheets The balance sheets present AAR's financial position as of May 31, 2025, and 2024, outlining assets and liabilities Condensed Consolidated Balance Sheets (Millions) | Metric | May 31, 2025 | May 31, 2024 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $96.5 | $85.8 | | Total current assets | 1,510.6 | 1,389.6 | | Total assets | $2,844.6 | $2,770.0 | | Total current liabilities | $554.7 | $466.9 | | Long-term debt | 968.0 | 985.4 | | Total liabilities | 1,633.0 | 1,580.2 | | Equity | 1,211.6 | 1,189.8 | Condensed Consolidated Statements of Cash Flows The cash flow statements detail cash generated and used by AAR's operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Millions) | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :--------------------------------------- | :-------- | :-------- | :------- | :------- | | Net cash provided by operating activities | $51.4 | $24.5 | $36.1 | $43.6 | | Net cash provided by (used in) investing activities | $27.6 | $(731.7) | $10.7 | $(758.5) | | Net cash provided by (used in) financing activities | $(70.7) | $719.7 | $(33.7) | $729.2 | | Increase in cash and cash equivalents | $8.3 | $12.5 | $13.1 | $14.3 | Segment Information This section provides a breakdown of AAR's third-party sales and operating income by segment Third-Party Sales by Segment Third-party sales grew across all segments in Q4 and FY2025, with Parts Supply and Repair & Engineering as key drivers Third-Party Sales by Segment (Millions) | Segment | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------- | :-------- | :-------- | :------- | :------- | | Parts Supply | $305.5 | $260.3 | $1,099.6 | $967.0 | | Repair & Engineering | 222.6 | 216.4 | 884.9 | 640.1 | | Integrated Solutions | 200.1 | 163.5 | 695.3 | 641.9 | | Expeditionary Services | 26.3 | 16.3 | 100.7 | 69.9 | | Total Sales | $754.5 | $656.5 | $2,780.5 | $2,318.9 | Operating Income (Loss) by Segment Operating income significantly increased across most segments in Q4 and FY2025, with Parts Supply showing strongest growth Operating Income (Loss) by Segment (Millions) | Segment | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------- | :-------- | :-------- | :------- | :------- | | Parts Supply | $49.7 | $35.2 | $156.8 | $109.8 | | Repair & Engineering | 18.3 | 20.6 | 81.2 | 52.5 | | Integrated Solutions | 12.6 | 1.2 | 36.4 | 23.9 | | Expeditionary Services | 3.2 | 0.4 | 10.1 | 3.5 | | Total Segment Operating Income | 83.8 | 57.4 | 284.5 | 189.7 | | Corporate and other | (10.8) | (24.8) | (99.3) | (60.5) | | Consolidated Operating Income | $73.0 | $32.6 | $185.2 | $129.2 | Non-GAAP Financial Measures Reconciliation This section reconciles non-GAAP financial measures to GAAP, providing a clearer view of core operating performance Overview of Non-GAAP Measures AAR uses non-GAAP measures like adjusted net income, EPS, operating margin, cash flow, EBITDA, and net debt to clarify core performance - Non-GAAP financial measures are used to illustrate core operating performance, cash flows, and leverage, unaffected by certain items management does not believe are indicative of ongoing activities[36] - Adjustments include costs associated with FCPA matters, acquisition activity, pension settlement charges, legal judgments, contract termination/restructuring costs, and losses related to business exits[37] - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, amortization, stock-based compensation, and items of an unusual nature[38] Adjusted Net Income Reconciliation Reconciliation tables show adjustments to GAAP net income, highlighting the impact of acquisition, FCPA, and business exit charges Adjusted Net Income Reconciliation (Millions) | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------- | :-------- | :-------- | :------- | :------- | | Net income (GAAP) | $34.0 | $9.1 | $12.5 | $46.3 | | Acquisition, integration, and amortization expenses | 3.1 | 18.6 | 26.7 | 42.8 | | Losses related to sale and exit of business/joint venture, net | 7.1 | 0.2 | 70.3 | 2.8 | | FCPA settlement and investigation costs | –– | 4.8 | 65.3 | 10.5 | | Tax effect on adjustments | (3.5) | (6.7) | (25.1) | (27.2) | | Adjusted net income | $41.5 | $31.3 | $139.6 | $118.4 | Adjusted Diluted EPS Reconciliation Reconciliation tables show adjustments to GAAP diluted EPS, reflecting the impact of various non-GAAP items Adjusted Diluted Earnings Per Share Reconciliation | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :--------------------------------------- | :-------- | :-------- | :------- | :------- | | Diluted earnings per share (GAAP) | $0.95 | $0.26 | $0.35 | $1.29 | | Acquisition, integration, and amortization expenses | 0.09 | 0.52 | 0.74 | 1.21 | | Losses related to sale and exit of business/joint venture, net | 0.20 | 0.01 | 1.97 | 0.07 | | FCPA settlement and investigation costs | –– | 0.14 | 1.84 | 0.29 | | Tax effect on adjustments | (0.10) | (0.20) | (0.70) | (0.76) | | Adjusted diluted earnings per share | $1.16 | $0.88 | $3.91 | $3.33 | Adjusted Operating Margin Reconciliation Adjusted operating margin reconciliation details adjustments to sales and operating income, showing improved margins Adjusted Operating Margin Reconciliation (Millions) | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------- | :-------- | :-------- | :------- | :------- | | Sales (GAAP) | $754.5 | $656.5 | $2,780.5 | $2,318.9 | | Adjusted sales | $735.8 | $658.8 | $2,748.3 | $2,321.2 | | Operating income (GAAP) | $73.0 | $32.6 | $185.2 | $129.2 | | Adjusted operating income | $76.9 | $61.3 | $265.1 | $192.9 | | Operating margin (GAAP) | 9.7% | 5.0% | 6.7% | 5.6% | | Adjusted operating margin | 10.5% | 9.3% | 9.6% | 8.3% | Adjusted Cash Flow Provided by Operating Activities Reconciliation Reconciliation of cash flow from operating activities shows adjustments for AR financing, resulting in adjusted cash flow Adjusted Cash Flow Provided by Operating Activities Reconciliation (Millions) | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :--------------------------------------- | :-------- | :-------- | :------- | :------- | | Cash flow provided by operating activities (GAAP) | $51.4 | $24.5 | $36.1 | $43.8 | | Amounts outstanding on accounts receivable financing program: Beginning of period | 20.2 | 13.7 | 13.7 | 12.8 | | Amounts outstanding on accounts receivable financing program: End of period | (21.3) | (13.7) | (21.3) | (13.7) | | Adjusted cash flow provided by operating activities | $50.3 | $24.5 | $28.5 | $42.9 | Adjusted EBITDA and Net Debt Reconciliation Adjusted EBITDA significantly increased for Q4 and FY2025, with net debt reduced to $880.5 million and a 2.72x leverage ratio Adjusted EBITDA Reconciliation (Millions) | Metric | Q4 FY2025 | Q4 FY2024 | FY2025 | FY2024 | | :-------------------- | :-------- | :-------- | :------- | :------- | | Net income (GAAP) | $34.0 | $9.1 | $12.5 | $46.3 | | Income tax expense | 13.6 | 4.5 | 26.4 | 12.0 | | Interest expense, net | 18.4 | 18.7 | 73.6 | 41.0 | | Depreciation and amortization | 13.7 | 15.3 | 55.2 | 41.2 | | Stock-based compensation | 4.3 | 3.8 | 19.9 | 15.3 | | Acquisition and integration expenses (benefit) | (0.9) | 14.6 | 10.8 | 29.7 | | Losses related to sale and exit of business/joint venture, net | 7.1 | 0.2 | 70.3 | 2.8 | | FCPA settlement and investigation costs | –– | 4.8 | 65.3 | 10.5 | | Adjusted EBITDA | $90.9 | $76.4 | $324.2 | $242.4 | | Adjusted EBITDA margin | 12.4% | 11.6% | 11.8% | 10.4% | Net Debt and Net Debt to Adjusted EBITDA (Millions) | Metric | May 31, 2025 | May 31, 2024 | | :-------------------------- | :----------- | :----------- | | Total debt | $977.0 | $997.0 | | Less: Cash and cash equivalents | (96.5) | (85.8) | | Net debt | $880.5 | $911.2 | | Adjusted EBITDA for the year ended | $324.2 | $242.4 | | Net debt to Adjusted EBITDA | 2.72 | 3.76 |