AAR Corp Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Mikus - Melius Research LLC - Analyst : Hi, John, Sean, good evening. John, I wanted to ask on the Triumph Product Support asset. So it came as 6,000 proprietary DER repairs. So I'm just wondering how should we think about the growth in the number of DER repairs that you can do to add to that? So should I be thinking an annual growth rate on that or just a simple number of repairs you want to add per annum?

Question: Scott Mikus - Melius Research LLC - Analyst : Okay, got it. And then I also wanted to stick with repair and engineering and just thinking about the MRO hangar. So you have the capacity expansions in Oklahoma City and Miami that will be ready for the fall of 2025. But I'm just wondering, do you have the pipeline of workers to fill those hangars on day one? Or is it going to take time to train, hire, and ramp up those new employees to generate sales and profits?

Question: Scott Mikus - Melius Research LLC - Analyst : All right, thanks for taking the questions.

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Good evening, guys. Thanks for taking the questions, nice results. Hey, John, just on the USM. and kind of the challenges there, I mean, how are you guys thinking about or how are you potentially forecasting whole asset sales for the year? I have got to imagine that's a challenge. And does that market? I mean, just given what's going on with the Boeing strike, I mean, obviously hard to tell long it lasts, but presumably airlines aren't getting planes they need it. Does that market potentially get even tighter for you?

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Got it. Is there any way to parse out maybe the piece parts or component sales of USM versus the headwind that that kind of or maybe you had an underlying growth that was masked by the whole asset sales? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 23, 2024 / 9:00PM, AIR.N - Q1 2025 AAR Corp Earnings Call

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Got it. Got it. And just as we're talking here, I mean, what's the environment like are there just very limited assets or are you seeing maybe, you know, airline operators actually looking to buy equipment to make an ROI on it just because they need to service their planes? I mean, are you seeing a high level of --

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Got it. Last one, Sean, just on the the adjustments in the quarter, any detail on the investigation costs that were $0.14 and the contract termination costs of $0.09, any color you can provide there?

Question: Michael Ciarmoli - Truist Securities, Inc. - Analyst : Yeah. Got it. Perfect. Thanks, guys. I'll jump back in the queue.

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Hey, good afternoon, John and Sean. And maybe, John, I wanted to first start on the P-8. It sounds like the airframe IDIQ is sort of a continuation of work you've been doing. But I just wanted to clarify that there isn't maybe a step up there in terms of the revenue opportunity. But then second and maybe more importantly on the engine side, can you talk about how much of that could be incremental from a revenue standpoint this year, how that phases in? And what exactly are you doing on the engine side? Is it more sort of parts support or maybe a little more color there?

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Can you quantify maybe how much growth the engine, the parts supply part of that contract could provide this year?

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Okay, great. And as we look at the parts supply business, nice margins this quarter. How do we think about the progression there? I mean, is a more meaningful step-up really held back until you can see a maybe more pronounced pull asset opportunity within USM.? Or is there an opportunity through mix and through efficiencies to continue to sort of drive incrementally higher margins on parts supply as we think about the cadence of this year and even into fiscal '26?

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Okay, helpful. And just finally coming out of your fiscal fourth quarter, there was some incremental concern around capacity growth and some spending by more specifically some of the low-cost airlines. And it sounds like that was predominantly sort of idiosyncratic to a few specific airlines situations. But can you just comment more from a macro standpoint on what you're seeing in terms of your airline customers and spending into sort of the back half here of calendar '24? And then I guess, any changes in your schedules backlogs demand as you think about spending into the first part of some sort of calendar '25?

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Great. Thanks, John.

Question: Louie DiPalma - William Blair - Analyst : John and Sean, and good afternoon. Great. Can you talk about the business development and pipeline activity with Trax? And when do you expect that Trax can become a viable sales channel for your your parts business?

Question: Louie DiPalma - William Blair - Analyst : Great. A few quarters ago still on track. I think you mentioned Singapore Airlines and Archer Aviation as new customers. How are the implementation coming?

Question: Louie DiPalma - William Blair - Analyst : Great. And following up Ken's question for the Navy, the pair of the Navy P-8 contract. For the engine services contract, did you take that contract away from an incumbent? And is that why you think there's an increased likelihood of a protest?

Question: Louie DiPalma - William Blair - Analyst : Yeah, definitely. And are there many other types of these engine contracts out there for the different of the Navy or Air Force platforms that you can either take away from at the incumbents or just new work in general?

Question: Louie DiPalma - William Blair - Analyst : Sounds good. And one final question on perhaps this is yet for both of you, John and Sean. As it relates to Triumph, can you talk about progress or the plans to in source our repair work for USM? Are we still in the early innings of and integrating trends such that you can and I take some of the Triumph repair capabilities and support your USM business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 23, 2024 / 9:00PM, AIR.N - Q1 2025 AAR Corp Earnings Call

Question: Louie DiPalma - William Blair - Analyst : Fantastic. Thanks, John and Sean.

Question: Scott Mikus - Melius Research LLC - Analyst : Yes, I just have a quick one for Sean. Sean, do you have the growth rates for defense and commercial within just the new parks distribution business?

Question: Scott Mikus - Melius Research LLC - Analyst : I mean, you just for this quarter, if you have it. If not, we can follow up offline.

Question: Scott Mikus - Melius Research LLC - Analyst : Okay, perfect. Thank you.

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Maybe, Sean, just another quick follow up. Last year, you had a similar sort of cash burn in the first quarter, but then you were nicely positive in terms of cash from operations and free cash through the rest of the year. Do you expect a similar sort of cadence now starting in the second quarter of this fiscal year in terms of cash generation? And I guess, bigger picture, how should we think about full year free cash generation? Maybe just sort of relative to EBITDA or maybe how much of an improvement should we expect relative to fiscal '24?

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Okay. So for full year free cash up over last year, but maybe similar to maybe sort of the growth, it sounds like working capital is going to continue to be a tail or a headwind in terms of free cash generation this year as well.

Question: Ken Herbert - RBC Capital Markets LLC - Analyst : Perfect. Thanks, Sean.