AAR(AIR) - 2026 Q1 - Quarterly Results

First Quarter Fiscal Year 2026 Highlights AAR reported strong Q1 FY2026 financial performance with significant organic sales and adjusted EBITDA growth, driven by strategic investments Q1 FY2026 Financial Performance Overview 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] 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 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] - Acquired Aerostrat, adding to Trax software capabilities, with an expectation to generate positive operating cash flows over the remainder of the fiscal year[5] - 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] Recent Business Developments AAR expanded its market presence through the Aerostrat acquisition and secured new multi-year defense and DLA contracts Acquisitions and Partnerships 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] - Expanded Trax's agreement with JetBlue Airways to include eMobility and its cloud hosting solution[7] New Contracts and Agreements 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] - 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] Detailed First Quarter Fiscal Year 2026 Results Consolidated sales and net income significantly increased in Q1 FY2026, driven by strong Parts Supply segment performance and improved operating margins Consolidated Financial Performance 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 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 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 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 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 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] - 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] - Financing activities were boosted by $153.0 million in proceeds from long-term borrowings[26] Non-GAAP Financial Measures and Reconciliations 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 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] - 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] - 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] Adjusted Net Income and EPS Reconciliation 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 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 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 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 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 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] - A listen-only webcast and slides were accessible online, with phone participation requiring prior registration[13][15] - A replay of the conference call will be available for on-demand listening for approximately one year[14] About AAR 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] - Headquartered in the Chicago area, with operations in over 20 countries[16] - Supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services[16] Forward-Looking Statements and Risk Factors 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] - 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] - 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]