WOOD DALE, Ill., March 27, 2025 -- AAR CORP. (NYSE: AIR), a leading provider of aviation services to commercial and government operators, MROs, and OEMs, reported today financial results for the fiscal year 2025 third quarter ended February 28, 2025.
THIRD QUARTER FISCAL YEAR 2025 HIGHLIGHTS
(As compared to Q3 FY2024)
- Sales of $678 million; increased 20%
- GAAP EPS of $(0.25)
- Adjusted diluted EPS of $0.99; increased 16%
- GAAP Net loss of $9 million
- Adjusted EBITDA of $81 million; increased 39%
- Adjusted EBITDA margin increased to 12.0% from 10.3%
MANAGEMENT COMMENTARY
"We delivered another strong quarter of significant year-over-year sales and earnings growth," said John M. Holmes, AAR's Chairman, President and Chief Executive Officer. "Sales were 20% higher than in the same quarter last year as demand remains elevated for our aftermarket services. Parts Supply sales increased 12%, driven by impressive gains in our new parts Distribution with both commercial and government activities. Our Repair & Engineering segment sales increased more than 53% year-over-year, with significant contributions from the Product Support acquisition as well as increased throughput within our Airframe MRO facilities. Integrated Solutions also posted meaningful earnings growth from both commercial and government programs as well as notable contributions from Trax."
Holmes continued, "We are particularly proud of the progress on EBITDA margin which expanded from 10.3% to 12.0% year-over-year. In addition to contributions from our Product Support acquisition, our internal initiatives to drive efficiency improvements continue to produce meaningful results. We are focused on further increasing our margins as we fully integrate the Product Support acquisition and drive additional efficiencies throughout the Company."
"Subsequent to the quarter, we announced several new business wins, including signing an exclusive agreement with Chromalloy to distribute their BELAC PW4000 PMA parts. We also added distribution support for select Unison parts under our Supplier Capabilities Contract with Defense Logistics Agency (DLA). These wins further validate our unique value proposition to both customers and suppliers as a leading independent distributor in the aviation aftermarket. Separately, and also subsequent to the quarter, we announced that Cathay Pacific selected Trax to be the maintenance operating system for the airline."
RECENT UPDATES
NEW BUSINESS
- Multi-year exclusive agreement with Unison to distribute select parts under AAR's Supplier Capabilities Contract with Defense Logistics Agency (DLA).
- Multi-year exclusive agreement with Chromalloy to distribute Parts Manufacturer Approval (PMA) turbine blades for the PW4000 engine through their wholly owned subsidiary, BELAC, LLC.
- Multi-year agreement with Cebu Pacific Air for CFM56 engine nacelle maintenance, repair and overhaul services for the airline's A320 fleet.
- Multi-year license agreement with Cathay Pacific for Trax software.
PORTFOLIO UPDATE
- Expected timing of the sale of our Landing Gear Overhaul business for $51 million is set for the fourth quarter of fiscal year 2025. The divestiture is part of the Company's strategy to optimize its portfolio.
THIRD QUARTER FISCAL YEAR 2025 RESULTS
Consolidated third quarter sales increased 20% to $678.2 million, compared to $567.3 million in the same quarter last year. This reflects a 22% increase in consolidated sales to commercial customers, primarily due to the Product Support acquisition and strong demand throughout the Company's Parts Supply segment. Sales to government customers increased 15% from the same period last year, primarily due to increased order volume for new parts Distribution activities. Sales to commercial customers were 72% of consolidated sales, compared to 70% in the prior year quarter.
Third quarter results include a pre-tax charge of $63.7 million associated with the recently announced divestiture of the Company's Landing Gear Overhaul business. As a result of this charge, the Company reported a net loss of $8.9 million, or $0.25 per share. For the third quarter of the prior year, the Company reported net income of $14.0 million, or $0.39 per diluted share. Adjusted diluted earnings per share in the third quarter of fiscal year 2025 were $0.99, compared to $0.85 in the third quarter of the prior year.
Selling, general, and administrative expenses were $61.3 million in the current quarter, compared to $77.0 million in the prior year quarter. The third quarter included the reversal of a legal charge of $11.1 million related to the Russian court judgment which AAR successfully appealed. Acquisition, amortization, and integration expenses were $5.3 million in the quarter, compared to $12.2 million in the prior year quarter.
Operating margins were 10.5% in the quarter, compared to 5.8% in the prior year quarter. Adjusted operating margin increased to 9.7% in the current year quarter from 8.3% in the prior year quarter, primarily as a result of growth in Repair & Engineering. Sequentially, our adjusted operating margin increased from 9.2% to 9.7%, driven by improved profitability in Parts Supply as well as Trax and government-related services in Integrated Solutions.
Net interest expense for the quarter was $18.1 million, compared to $11.3 million last year, primarily due to increased debt levels as a result of funding the Product Support acquisition. Average diluted share count increased from 35.2 million shares in the prior year quarter to 35.4 million shares in the current year quarter.
Cash flow used in operating activities was $18.7 million during the current quarter, compared to $20.4 million of cash provided in the prior year quarter. As a reminder, during the quarter, we paid the $56 million FCPA settlement which was a use of cash within operating activities. Excluding the accounts receivable financing program, cash flow used in operating activities was $15.0 million in the current quarter. As of February 28, 2025, net debt was $947.6 million and net leverage was 3.06x.
Holmes concluded, "We are proud of the sales growth and significant margin expansion we delivered this quarter. Demand for our services remains very high and we anticipate our sales growth to continue. Additionally, we expect further margin expansion through growth in new parts Distribution, Trax, Airframe MRO efficiencies and the realization of Product Support synergies. We have reduced our net leverage from 3.58x at the time of the Product Support acquisition to 3.06x one year later. We expect further deleveraging in our fourth quarter and throughout our fiscal year 2026. We believe our continued growth, margin expansion, and disciplined capital allocation will drive additional value to shareholders."
Conference call information
On Thursday, March 27, 2025, at 4 p.m. Central time, AAR will hold a conference call to discuss the results. A listen-only webcast and slides can be accessed at https://edge.media-server.com/mmc/p/htoknnom. Participants may join via phone by registering at https://register-conf.media-server.com/register/BI146169c83ec044ccb681c3add61e0b60. Once registered, participants will receive a dial-in number and a unique PIN that will allow them to access the call.
A replay of the conference call will be available for on-demand listening shortly after the completion of the call at the webcast link and will remain available for approximately one year.
The slides are also available on AAR's website at https://www.aarcorp.com/en/investors/events-and-presentations/.
About AAR
AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through four operating segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services. Additional information can be found at aarcorp.com/.
This News is brought to you by Qube Mark, your trusted source for the latest updates and insights in marketing technology. Stay tuned for more groundbreaking innovations in the world of technology.
