AAR Corp.

Good afternoon, ladies and gentlemen, and welcome to AAR's fiscal 2021 first quarter earnings call. We are joined today by John Holmes, President and Chief Executive Officer, and Sean Gillen, Chief Financial Officer. Before we begin, I would like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 and As noted in the company's news release and the risk factor section of the company's Form 10-K for the fiscal year ended May 31, 2020. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. At this time, I would like to turn the call over to AAR's President and CEO, John Holmes.

Great. Thank you very much, and good afternoon, everyone. I appreciate you joining us today to discuss our first quarter fiscal year 2021 results. Before reviewing the quarter, I would like to express my continued gratitude to AAR's employees. The majority of our people have continued to come to work every day throughout the pandemic to ensure AAR's uninterrupted support of its customers, and I am grateful for their dedication and commitment and proud of our team's ability to continue to navigate the truly unprecedented decline in commercial passenger flying. Turning to the results, our sales for the quarter decreased 26% from $542 million to $401 million, and our adjusted diluted earnings per share from continuing operations decreased 70% from $0.57 per share to $0.17 per share. Our total sales to commercial customers decreased 48% from the prior year, while sales to government and defense customers increased 10%, reflecting new contract awards and significant shipments out of our mobility business against the previously announced $125 million cargo pallets contract. For the quarter, sales to government and defense customers were 56% of the total. In response to the current environment, we have taken a number of actions to align our costs with the lower levels of demand, but we've also gone further to position the company for improved margins as demand recovers. Over the last three quarters, we have consolidated three facilities, made permanent reductions to our fixed and variable costs, and exited or restructured several underperforming contracts. We have also taken steps to focus on our core aviation services offering by completing the divestitures of our airlift and composites businesses. All of these actions have simplified our portfolio, improved efficiency in our operations, and set us up to drive higher returns on capital. In addition to this progress, we continue to win new business during the quarter. We announced a three-year contract with the Royal Netherlands Air Force to repair F-16 jet fuel starters. We also announced two new contracts, one by our Air and Mars subsidiary, which provides component repair cycle management and aircraft warranty solutions. We were selected by both Frontier Airlines and Air Methods, the world's largest civilian helicopter operator, to provide a full suite of warranty and value engineering services. In addition to the wins this quarter, we saw stabilization in certain of our businesses. Our order volume and trading and distribution was consistent throughout the quarter at a level above what we saw in April and May, but well below pre-COVID levels. In our MRO business, as we head into the fall, we are encouraged by the loading we expect to see in our hangars. While our customers continue to operate in an uncertain environment and their maintenance schedules could change, the early indications are positive relative to our earlier expectations. We are in a constant contact with our commercial customers globally and are continuing to look for ways to support them during this difficult time. In our government business, where we saw growth during the quarter, we continue to pursue new opportunities and the pipeline remains full. With that, I'll turn it over to our CFO, Sean Gillen.

Thanks, John. As John mentioned, we continued to take action to reduce our costs and exit underperforming activities in the quarter. These actions and other items resulted in predominantly non-cash pre-tax charges of $37.3 million. Also, as previously disclosed, we received financial aid under the CARES Act in the quarter. The total amount received was $57.2 million, of which $48.5 million was a grant and $8.7 million was a low-interest prepayable loan. In the quarter, we utilized $8 million of the CARES Act grant and $3 million of other non-U.S. government labor subsidies for a total of $11 million. This amount is included in the GAAP income statement, but excluded from adjusted earnings. As of the quarter end, the unutilized portion of the grant was $40.8 million, which was recorded as a current liability. This amount will flow through the P&L as it is utilized, which we expect to be complete by mid-Q4. Turning to some additional financial detail in the quarter. SG&A expense was $45.3 million for the quarter. On an adjusted basis, SG&A was $39.7 million, down $10.5 million from the prior year quarter, which reflects the reduction of our overhead cost structure. In the quarter, adjusted SG&A as a percentage of sales was 9.9%. Net interest expense for the quarter was $1.6 million compared to $2.1 million last year, which reflects the lower interest rate in the periods. During the quarter, we generated $39.8 million of cash in our operating activities from continuing operations. This includes the $48.5 million grant portion of the CARES Act funding and a net use of cash of $18.6 million as we reduce the level of our accounts receivable financing program. Excluding the CARES Act and accounts receivable financing program impacts, cash flow provided by operating activities from continuing operations was $9.9 million. Additionally, as we have focused on lowering our working capital, we were able to reduce inventory by 19 million during the quarter. Also, we repaid 355 million of our revolving credit facility during the quarter. We had previously drawn the full balance as a precautionary measure. Our net debt at quarter end was 149.3 million and unrestricted cash was 107.7 million. Our balance sheet remained strong with net leverage of 1.1 times. and availability under our revolver of approximately 355 million, and we have no near-term maturities. Thank you for your attention, and I will now turn the call back over to John.