AAR(US:AIR)2026-01-06 22:36Sales Performance - Consolidated sales for Q2 fiscal 2026 increased by $109.2 million, or 15.9%, compared to the prior year quarter, driven by strong demand in commercial customer sales [194]. - Sales to commercial customers rose by $66.2 million, or 13.2%, primarily due to growth in new parts Distribution activities, including $19.3 million from the recent ADI acquisition [194]. - Sales to government customers increased by $43.0 million, or 23.1%, mainly due to volume growth in the Parts Supply segment [194]. - For the six-month period ended November 30, 2025, the Parts Supply segment reported third-party sales of $671.4 million, a 28.3% increase from $523.4 million in the prior year [219]. - The Repair & Engineering segment saw a 2.8% increase in third-party sales to $459.1 million, with operating income slightly decreasing by 1.8% to $43.1 million [221]. - The Integrated Solutions segment's third-party sales rose by 8.6% to $360.8 million, with operating income increasing by 66.2% to $23.6 million [223]. - The Expeditionary Services segment experienced a 4.6% decline in sales to $43.6 million, but operating income surged by 980.0% to $5.4 million due to the impact of contract termination [226][227]. Profitability - Consolidated gross profit for Q2 fiscal 2026 increased by $28.3 million, or 22.0%, with government customer gross profit rising by $16.0 million, or 51.9% [196]. - The gross profit margin on sales to government customers improved to 20.4% from 16.6% in the prior year quarter [196]. - Operating income in the Parts Supply segment increased by $20.1 million, or 32.6%, to $81.8 million, driven by improved profitability from increased sales volume [220]. Expenses and Taxation - Selling, general, and administrative expenses decreased by $44.4 million, or 33.4%, from the prior year quarter, primarily due to the settlement of FCPA matters [198]. - The effective income tax rate for continuing operations was 28.1% for Q2 fiscal 2026, down from 36.0% in the prior year quarter [201]. - The effective income tax rate for continuing operations was 27.4% for the six-month period ended November 30, 2025, compared to an income tax expense of $15.0 million in the prior year [210]. Acquisitions and Investments - The company acquired American Distributors Holding Co. for $137.7 million, enhancing its distribution capabilities in the aerospace and defense industry [179]. - The company is expanding its Miami and Oklahoma City airframe maintenance facilities, with the Miami facility expected to be completed in mid-to-late calendar 2026 [182]. - The company expects long-term growth in aviation products and services, emphasizing investments in both commercial and government markets [192]. Liquidity and Financing - As of November 30, 2025, the company had liquidity and capital resources of $1,096.1 million, including cash of $75.6 million [229]. - The company entered into an amendment to its revolving credit facility, increasing commitments to $825.0 million from $620.0 million [230]. - Borrowings outstanding under the amended revolving credit facility were $260.0 million, with $10.0 million in outstanding letters of credit [232]. - The company issued $550.0 million in Senior Notes at a 6.75% interest rate to fund part of the acquisition of the Product Support business [233]. - The maximum amount of receivables sold under the Purchase Agreement with Citibank N.A. is limited to $150.0 million, with $20.5 million utilized as of November 30, 2025, reducing availability to $129.5 million [237][238]. - In Q2 of fiscal 2026, the company sold 3,450,000 shares of common stock at $83.00 per share, resulting in net proceeds of $273.9 million after expenses [239]. - The stock repurchase program allows for up to $150 million in repurchases, with 2.4 million shares repurchased for an aggregate price of $107.5 million since inception, but no repurchases occurred in the last six months [240]. - Net cash used in operating activities was $31.3 million for the six months ended November 30, 2025, a decrease of $34.7 million compared to the prior year [241]. - Net cash used in investing activities increased to $237.1 million for the six months ended November 30, 2025, primarily due to acquisitions of ADI and HAECO Americas [242]. - Net cash provided by financing activities was $255.4 million for the six months ended November 30, 2025, an increase of $259.2 million compared to the prior year, largely due to the common stock offering [243]. Risks and Accounting Policies - There have been no significant changes to critical accounting policies during the second quarter of fiscal 2026 [244]. - The company faces various risks that could materially affect future results, including competition, operational management, and integration of acquisitions [248]. - A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on the financial position for the quarter ended November 30, 2025 [251]. - There were no significant changes in interest rate risk during the quarter ended November 30, 2025 [252].