AAR Corp.

Hello, and welcome to AAR Corp Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the conference over to Denise Pacione, Director of Investor Relations. You may begin.

Thank you. Good afternoon, everyone, and welcome to AAR's fiscal year 2025 third quarter earnings call. We're joined today by John Holmes, Chairman, President, and Chief Executive Officer, and Sean Gillen, Chief Financial Officer. The presentation material we are sharing today as part of this webcast can also be found in the investor relations section under the events and presentation tab located on our corporate website. Before we begin, I'd 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 section of the company's annual report on Form 10-K for the fiscal year ended May 31, 2024. 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 during 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 and slides. A transcript of this conference call will be available shortly after the webcast on AAR's website. At this time, I would like to turn the call over to AAR's Chairman, President, and CEO, John Holmes.

Great. Thank you, and welcome, everybody, to our third quarter fiscal year 2025 earnings call. I'm pleased to report another strong quarter at AAR with record results in both sales and adjusted EPS. This past quarter, we successfully drove value throughout the organization by growing our aftermarket services and significantly improving our margins. We continue to benefit from a strong demand environment in both our commercial and government end markets, which we anticipate will continue through calendar year 2025. Turning now to slide three, I want to highlight some of our achievements from this past quarter. Our third quarter sales of $678 million improved 20% year over year, setting a new third quarter sales record for the company. We saw continued strength across our business segments as consolidated sales to commercial customers increased 22% from the same quarter last year and sales to government customers increased 15%. While top line sales grew from the same period last year, we also demonstrated meaningful improvements to our bottom line results. Adjusted EBITDA of $81.2 million was higher by 39% from the same quarter last year. EBITDA margin increased to 12% this year from 10.3% in the third quarter of last year, driven by strong performance in our new parts distribution activities and our Airframe MRO operations, as well as our product support acquisitions. Once again, the combination of sales growth and margin expansion resulted in a significant increase to adjusted earnings per share. which grew 16% to 99 cents compared to 85 cents from the same period last year. Additionally, this past quarter, we reduced our net debt leverage to 3.06 times from 3.17 times in the prior quarter. Our strong balance sheet and disciplined capital allocation strategy have us well positioned for investments that will continue to drive growth. Turning now to slide four, I will discuss our three core business segments in more detail. Part supply continues to be our largest business segment, contributing nearly 40% of our company sales overall. Third quarter sales of approximately $271 million were 12% higher compared to the same quarter last year, driven largely by significant growth in our new parts distribution activities. Third quarter adjusted EBITDA for parts supply was $36.8 million, 12% higher than the same quarter last year. New Parts distribution continues to drive exceptional growth in this segment as sales increased 20% organically from the prior year quarter with meaningful growth across both our commercial and government end markets. We saw better than expected margins due to favorable product mix and scaling efficiencies as recent new exclusive distribution contracts ramped up. I want to take a moment and highlight our New Parts distribution business. This business has grown by double digits organically for each of the last 13 quarters and now represents approximately 60% of our parts supply segment. Our role as an independent distributor, combined with our focus on exclusive contracts, is compelling value proposition for our customers and OEM partners. A recent example of this value proposition is our multi-year agreement to exclusively distribute select Unison parts under our supplier capabilities contract with the Defense Logistics Agency. In this agreement, we are expanding our penetration with a key supplier, Unison, and helping the U.S. government meet its needs. Additionally, we have entered into a multi-year exclusive agreement with Chromoly to distribute their PMA parts for the PW4000 engine platform. This builds on our previously announced agreement to distribute Chromoly's PMA parts for the CF680C2 engine platform. In our USM activities, we saw modest year-over-year growth, which fell short of our expectations for the quarters. We saw a decline in volume due to timing of engine inductions for certain contracts we support. We expect this lower volume level to be temporary. While engine material and narrowbody assets remain tight, as we mentioned last quarter, we see signs of loosening and more whole assets coming to the market. We are watching this market closely and believe we are well-positioned to invest in parts and whole assets where they meet our return requirements. To that end, this morning's announcement of our extension of our CFM56 arrangement with Apti will provide exclusive access to this high-demand material and now and in the coming years turning now to repair and engineering segment third quarter sales were 216 million and grew 53 from the same quarter last year adjusted even dog grew to 27.9 million up 110 from the same quarter last year the product support acquisition continues to perform well and drive growth and margin improvement in the repair and engineering segment As a reminder, as part of the product support integration, we are exiting our Long Island, New York facility and consolidating that work into our locations in Dallas and Wellington, Kansas. The site integration is on schedule for completion during our fiscal fourth quarter, and we intend to fully exit the New York facility in Q1 FY26. That said, we saw some lower efficiencies and throughput this quarter as we significantly ramped up headcount in the two sites that are receiving the work. As our new technicians become more experienced, they will be able to repair units more efficiently. As we come out of this particularly active point in the integration process, we expect our operating efficiency to improve, which supports our plan to continue our overall margin expansion. Finally, it's important to note that the backlog is growing across our component repair sites as we leverage our global sales force to win new business. One example of this is the recently announced multi-year agreement with Seabrook Pacific for CFM56 engine to cell maintenance for their A320 fleet. This work will be done out of our Thailand facility and represents a key win in the important Asia Pacific region. On the airframe MRO side of repair and engineering, we continue to see strong underlying demand for our services and are focused on implementing process improvements that continue to increase efficiency and improve throughput at our existing facilities. These initiatives have been extremely effective and led to better than expected margins this quarter. Our hangar capacity expansions in Miami and Oklahoma City are both progressing. The Oklahoma City expansion is slightly ahead of schedule, and the Miami expansion is slightly behind due to some permitting delays. Turning now to integrated solutions, sales for the quarter were $163 million, slightly lower than the same quarter last year due to a net decline in our overall government activities. While we saw a decline in certain existing programs, this was partially offset by growth in new programs, which we expect to continue and contribute to overall growth in the coming quarters. Adjusted EBITDA in integrated solutions for the second quarter was $16.2 million, stronger by 11% from the same period last year due to mixed shift within certain programs and strong performance from TRACS. Speaking of TRACS, while TRACS is a relatively small contributor today, As we invest and scale the offering to secure more business, Trax will drive further operating margin expansion for the company overall. An example of a new business win is Cafe Pacific, who recently selected Trax to become the new maintenance operating system for their airline. Additionally, we expect that Trax will ultimately become a sales channel for our parts activities, and we are making investments to support this initiative. Before I turn it over to Sean, I did want to comment on the current government environment and DOGE in particular. AAR can bring significant cost savings to the government by applying our commercial best practices. We've demonstrated this already with our support on the U.S. Navy's P-8 fleet for airframe and engine maintenance. Our services allow the government to reduce costs and improve readiness. Additionally, we continue to pursue USM sales opportunities with the U.S. government, which is a cost-saving alternative to purchasing new parts. We look forward to further demonstrating our capabilities to the U.S. Department of Defense, State Department, and other agencies, and submitted a paper to the Doge Commission outlining specific areas where we can best provide cross-examination. I'll now turn it over to Sean to discuss our third quarter results in more detail.