• Revenue: $686 million, up 26% year-over-year.
• Adjusted Earnings Per Share (EPS): $0.90, an 11% increase from the same period last year.
• Adjusted EBITDA: $78.3 million, a 42% increase from the same quarter last year.
• EBITDA Margin: Increased from 10.1% to 11.4% year-over-year.
• Adjusted Operating Margin: Improved from 8.1% to 9.2% year-over-year.
• Parts Supply Sales: $274 million, up 20% year-over-year.
• Repair & Engineering Sales: $229 million, up 57% year-over-year.
• Integrated Solutions Sales: $163 million, up 4% year-over-year.
• Cash Flow from Operating Activities: $22 million for the quarter.
• Net Debt Leverage: Reduced from 3.3 times to 3.17 times during the quarter.
• Settlement Amount: $55.6 million related to FCPA resolution.
• Landing Gear Overhaul Business Sale: Expected to close in Q1 2025 for $51 million.

• Warning! GuruFocus has detected 5 Warning Signs with AIR.

Release Date: January 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• AAR Corp (NYSE:AIR) reported record top-line results for Q2 2025 with sales of $686 million, a 26% increase from the same quarter last year.
• The company achieved a record adjusted EPS of $0.90, marking an 11% increase from the previous year.
• AAR Corp (NYSE:AIR) experienced double-digit sales growth in both its commercial and government businesses, with commercial sales up 30% and government sales up 16%.
• The Repair & Engineering segment saw a significant 57% growth in sales, driven by strong demand and successful integration of the product support acquisition.
• The company is on track to realize $10 million in cost synergies from the product support acquisition by fiscal Q1 FY26, contributing to future margin expansion.

Negative Points

• AAR Corp (NYSE:AIR) faced a $55.6 million settlement related to Foreign Corrupt Practices Act violations, impacting financial results.
• The Integrated Solutions segment experienced a slight decrease in adjusted EBITDA and operating income due to a mix shift within certain programs.
• Part Supply segment's adjusted EBITDA margin decreased from 13.2% to 12.4% due to lower-margin whole asset sales.
• The company anticipates recognizing a noncash pretax loss of approximately $60 million related to the divestiture of its Landing Gear Overhaul business.
• Net interest expense increased to $18.8 million, reflecting the financing of the Product Support acquisition, with expectations to remain consistent in Q3.

Q & A Highlights

Q: Are there any restrictions that would prevent AAR Corp from distributing PMA parts for the CFM56 and V2500 engines, and could a deal be worked out with FTAI and Chromalloy? A: John Holmes, CEO, stated that AAR Corp is aware of Chromalloy's PMA portfolio and is in discussions with both Chromalloy and FTAI to explore business growth opportunities together.

Q: Can you size your revenue exposure to ultra-low-cost carriers (ULCCs) in the US? A: John Holmes, CEO, mentioned that AAR Corp is heavily skewed towards larger carriers like United Airlines, Delta Airlines, and American Airlines, with minimal business from lower-cost carriers in North America.

Q: Can you provide insights into the growth of the USM portfolio and expectations for the second half of the fiscal year? A: John Holmes, CEO, noted that USM growth accelerated from the first to the second quarter, with more assets available for sale. While it's early to call it a trend, AAR Corp expects continued growth through the fiscal year as long as they can capture available assets.

Q: How are you managing potential conflicts with OEM partners as you expand into PMA parts? A: John Holmes, CEO, assured that AAR Corp manages these relationships carefully and targets parts from OEMs where there is no conflict, ensuring alignment with existing partnerships.

Q: What is AAR Corp's long-term view on net leverage and appetite for M&A given the recent increase in interest rates? A: Sean Gillen, CFO, stated that deleveraging is a focus, with a target of reaching 2 times net leverage two years post-acquisition. While integrating TPS and realizing synergies are current priorities, AAR Corp remains open to future acquisitions in the aftermarket.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.