AAR Corp.

Good afternoon, ladies and gentlemen, and welcome to AAR's fiscal 2022 third 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. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's earnings release, and the risk factor sections with companies Form 10-K for the fiscal year ended May 31, 2021, and Form 10-Q of the fiscal quarter ended November 30, 2021. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. Certain non-GAAP financial information will be discussed on the call today. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in the company's earnings release. At this time, I'd like to turn the call over to AAR's president and CEO, John Holmes.

Great. Thank you and good afternoon, everyone. I appreciate you joining us today to discuss our third quarter fiscal year 2022 results. I want to start by saying that our thoughts are with those impacted by the conflict in Ukraine. We are both saddened and angered by Russia's unprovoked invasion and stand with all those who are suffering. Although we do very little work in either country, we have suspended all of our business with the sanctioned nations and territories. That said, in turning to the quarter, our sales increased 10% year over year from $410 million to $452 million, and our adjusted diluted earnings per share from continuing operations increased 70% from $0.37 per share to $0.63 per share. Sequentially, overall sales grew 3.6%. In our commercial business, we had another strong quarter in MRO. Our parts activity started out slowly in the quarter, but gained momentum as the impact of the Omicron variant declined. As we have discussed previously, parts supply is our highest margin activity and its recovery is paced behind MRO. The parts momentum during the quarter gives us continued confidence in the eventual full recovery and ultimately more growth out of that activity. On the government side, we were able to drive sequential growth despite the headwinds we faced as a result of the Afghanistan withdrawal. Regarding earnings, I'm particularly pleased that we delivered another quarter of margin expansion as our adjusted operating margin was 6.7%. Sequentially, this is up from 6.1% in the second quarter and continues to exceed pre-COVID levels despite our commercial sales remaining down more than 25%. Turning to cash, we had another excellent quarter as we generated $16 million of cash from operating activities from continuing operations. We also repurchased $20 million of stock consistent with the share repurchase program we announced earlier in the quarter. Even after the share repurchases, our balance sheet remains strong at 0.4 times net leverage, and we continue to be exceptionally well-positioned to fund our growth. Regarding new business, during the quarter, we announced a 10-year renewal of our component MRO contract to provide depot-level maintenance for NATO's E-3A AWACS aircraft. Also, subsequent to the end of the quarter, we announced a new exclusive distribution agreement with Collins Aerospace to supply de-icers and supporting products to the global aftermarket. This is an important win because it's our first exclusive commercial distribution agreement with Collins, and it also represents a move into the business debt market where we see adjacent opportunities for growth. This most recent distribution win demonstrates both the value proposition that our offering brings to component OEMs and our ability to continue to drive market share gains in this activity. With that, I'll turn it over to our CFO, Sean Gillen, to discuss the quarter in more detail. Thanks, John.

Our sales in the quarter are $452.2 million. We're up 10.2% or $41.9 million year over year. Sales in our aviation services segment were up 12.4%, driven by recovery in our commercial markets, and sales in our expeditionary services segment were down $6.4 million, driven by a delayed pallet order that we expect to now receive in Q4. Our commercial sales were up 28% year over year, while our government sales were down 8%. The decline in government sales was primarily driven by the wind down of our activity in Afghanistan and the natural completion of other government programs. Our sales in Afghanistan in the quarter were 8 million and we currently expect to be down to approximately 1 million in the fourth quarter. Sequentially, our commercial sales increased 2.8% and our government sales increased 4.6%. Our MRO operations remained in near capacity and although we saw increasing parts volumes throughout the quarter, Overall parts growth was limited by the slower start that John referenced. On the government side, the sequential sales growth was driven by our ability to secure additional work in our government programs operations, which was more than sufficient to offset the reduction of activity in Afghanistan. Gross profit margin in the quarter was 17.8% versus 21% in the prior year quarter, which included the benefit of CARES Act payroll support. Adjusted gross profit margin was 17.3% up from 16.1% in the prior year quarter and 16.7% in Q2. This margin expansion continues to be driven by the efficiency improvement and portfolio refinement actions that we took during the pandemic, as well as improved conditions in our commercial parts activities. Gross profit margin in our commercial business was 20.1% and gross profit margin in our government business was 14.5%. In the quarter, commercials margin benefited from intercompany procurement activity on behalf of government customers. SG&A expenses in the quarter were $48.9 million, or 10.8% of sales. Excluding adjustments of $1.7 million related primarily to investigation and remediation costs, this would have been closer to 10.4% of sales. Net interest expense for the quarter was $0.6 million, compared to $1 million last year driven by lower borrowings. Average diluted share count for the quarter was 35.7 million. This reflects the repurchase of 0.5 million shares during the quarter. We expect to continue to execute on our previously commuted plan to deploy the full 150 million authorization over approximately two years. As John indicated, we generated cash flow from our operating activities from continuing operations of 16.2 million, and we also reduced our accounts receivable financing program by 2.2 million in the quarter. This strong cash flow largely funded the $20 million share repurchase in the quarter, and our balance sheet remains exceptionally strong with net debt of $63.9 million and net leverage of 0.4 times. Thank you for your attention, and I'll now turn the call back over to John.